Using a Guarantor to Buy Property in Australia: What You Need to Know

Purchasing your first property can be challenging, especially when it comes to saving for a deposit. Many Australians turn to family members, often parents, to act as guarantors to help them secure a loan. This arrangement, commonly referred to as using a family guarantor, can make a big difference in whether or not you can enter the property market sooner. In this article, we’ll explain what a guarantor is, how it works, and outline the advantages and disadvantages of this approach.

What Is a Guarantor?

A guarantor is someone, usually a family member, who offers part of their own property or savings as security for your home loan. This is particularly helpful when you don’t have enough saved for a deposit. By using a guarantor, lenders can offer you a loan with a lower deposit and potentially avoid the cost of Lenders Mortgage Insurance (LMI).

Advantages of Using a Guarantor

Purchase Property Sooner:

Without having to wait until you save a larger deposit, you can enter the property market faster.

Avoid Lenders Mortgage Insurance (LMI):

LMI is typically required if you borrow more than 80% of the property’s value. A guarantor can help you avoid this extra cost.

Maximise Your Loan Amount:

By having a guarantor, lenders may allow you to borrow a higher amount, giving you more flexibility in choosing a property.

Disadvantages of Using a Guarantor

Limits on Your Guarantor’s Borrowing Capacity: By offering their own property as security, your guarantor’s ability to borrow in the future may be affected.

Risks to the Guarantor: If you are unable to make your loan repayments, your guarantor may be liable for the portion of the loan they guaranteed.

Is a Guarantor the Right Option for You?

Using a guarantor is a serious financial commitment for both the borrower and the guarantor. It’s important to consider the risks and responsibilities involved, and seek professional advice before proceeding. A guarantor can help you get into the property market sooner, but it’s essential to understand the potential impact on your family member’s financial situation.

At MoneyQuest, we specialise in a range of loan options for residential, investment, and commercial properties. Whether you’re buying your first home or looking to grow your investment portfolio, our experienced brokers can help you find the right solution. We also offer expertise in financing businesses, franchises, SMSFs, vehicles, and commercial equipment.

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