A family guarantee allows you to purchase a home, by effectively using the equity in another person’s property as a deposit.

Most lenders want you to come up with a 20% deposit in order to get a home loan, unless you’re prepared to pay Lender’s Mortgage Insurance (LMI).

If that is not possible, you could use a guarantor, who is normally a close family member, like your parents, to provide that equity.

For example:

You want to purchase a property for $500,000 and the lender requires you to have a $100,000 deposit.

If you only have $25,000 saved, it is possible to get your parents to act as a guarantor and provide the $75,000 from the equity in their own property to enable you to access a loan.

There are a number of advantages to using a guarantor loan, especially if saving a full deposit would otherwise take much longer.

The main consideration for you if you choose a guarantor loan is that the person providing the guarantee is liable in the event that you are not able to make your loan repayments.

You will still also need to be able to service the full loan amount, so while you can access a higher LMI, it is vital that you can service the repayments.