Have you ever wondered how some young Australians manage to buy their first home without saving for years? Let me take you behind the curtain of one of the most powerful yet misunderstood tools in the mortgage world: family guarantees.
The Hidden Pathway to Homeownership
I want you to imagine this scenario: You're scrolling through real estate listings, seeing homes you love but thinking they're years away because you haven't saved enough for a deposit.
Meanwhile, your parents have substantial equity in their home but can't just give you $100,000+ in cash.
This is where family guarantees come in and they're not as complicated as banks might make them seem.
Breaking Down Family Guarantees: How They Actually Work
When you use a family guarantee, something fascinating happens with the loan structure.
Instead of getting one big mortgage, you actually get two separate loans:
Loan A (80%): This is secured only by your new property
Loan B (20% + costs): This is secured by both your property AND a portion of your guarantor's property
Let's visualise this with real numbers. Say you're buying a $700,000 home in Brisbane:
Loan A = $560,000 (80% of property value)
Loan B = $140,000 + costs (remaining 20% + purchase costs)
The Bank's Perspective: Why This Works
Banks are fundamentally concerned with one thing: getting their money back if things go wrong. With a family guarantee:
Loan A sits at 80% LVR (Loan to Value Ratio) on your property—a level banks are comfortable with
Loan B has double security (your property PLUS your parents' property)
This structure dramatically reduces the bank's risk, which is why they're willing to lend you 100% (or more) of the purchase price.
What Happens If Things Go Wrong?
This is the part most people misunderstand—and what causes unnecessary fear for potential guarantors.
If you default on your loan:
The bank sells your property first
Proceeds pay off Loan A completely
Remaining funds go toward Loan B
Only if there's still a shortfall on Loan B would your parents' property be at risk
For example, if your $700,000 property sells for $650,000:
Loan A gets paid ($560,000)
$90,000 goes toward Loan B
Parents would need to cover the $50,000+ shortfall
Their property would only be sold if they couldn't cover this shortfall through savings or getting a loan themselves.
The Real Benefits for First Home Buyers
I've seen first hand how family guarantees transform the homebuying journey:
Zero deposit required: You can potentially enter the market with no savings
No LMI: Avoid Lender's Mortgage Insurance, which can cost $20,000-$50,000 on larger loans
Better interest rates: Banks offer more competitive rates with this security structure
No cash gift needed: Parents don't need to hand over actual money
Temporary arrangement: Guarantees can typically be released within 3-5 years
What Family Guarantees DON'T Do
Here's what many people miss: A family guarantee does NOT help with loan serviceability.
You still need to prove you can make the repayments on the full loan amount. Your parents guaranteeing the loan doesn't magically increase your borrowing capacity—your income remains the critical factor.
The Exit Strategy: Releasing Your Guarantor
The beauty of family guarantees is they're designed to be temporary. Your guarantor can be released when:
Your property increases in value
You pay down your loan balance
Or a combination of both
Once your LVR drops below 80%, you can apply to release the guarantee. In Queensland's growing property market, I've seen guarantors released in as little as 2-3 years.
Real-World Example: How It Played Out for One of My Clients
Sarah and Michael were paying $550 per week in rent but couldn't save enough for a deposit. Their parents had significant equity in their home but limited cash.
We arranged a family guarantee for a $650,000 property:
Loan A: $520,000 (80%)
Loan B: $130,000 + $25,000 costs (20% + purchase costs)
Their parents guaranteed just the $155,000 portion.
Three years later, their property was valued at $780,000. With the increased value and some principal reduction, their LVR dropped below 80%, and we released their parents from the guarantee.
Now they're building equity instead of paying rent, and their parents' property is no longer tied to the loan.
Is a Family Guarantee Right for You?
A family guarantee could be perfect if:
You have stable income but limited savings
Your parents (or close family) own property with sufficient equity
You're comfortable with your parents temporarily securing part of your loan
You understand the responsibilities involved
Next Steps: What to Do If You're Interested
If you think a family guarantee might work for you:
Have an honest conversation with your potential guarantor
Book a strategy session with a mortgage broker who specialises in family guarantees
Get clear on the numbers specific to your situation
Ensure everyone understands their responsibilities
A family guarantee could be the difference between years more renting and getting into your own home now.
Want to explore whether a family guarantee could work for your situation? Book a free strategy session with us to get clarity on your options.
