How much can I borrow with a guarantor?

A guarantor may be able to help you get your foot in the door of the housing market sooner rather than later. But how much can you borrow with a guarantor?

This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Please consider seeking financial advice before making any decision based on this information.‍

Saving for a house deposit is often easier said than done. But if you’re lucky enough to have access to a guarantor they may be able to help you get your foot in the door of the housing market sooner rather than later.

Learn more about how to boost your borrowing power with the help of a guarantor.

How do guarantor loans work?

In a nutshell, a guarantor is an immediate family member, usually a parent, who agrees to foot the bill for your mortgage in the event you’re not able to meet your minimum repayments. Having a guarantor means that you’re able to purchase a property will a deposit of less than 20%. Usually, you’d have to fork out for lender’s mortgage insurance (LMI) to offset the risk of a small deposit, but when you have the backing of a guarantor you can often avoid paying LMI.

The way most guarantor loans work is the guarantor uses their own home as security against your mortgage or a portion of your mortgage. Once you’ve repaid the portion of the loan the guarantor has guaranteed, they’ll be released as guarantor on your loan.

There are a few different types of guarantor loans, including family guarantees, security guarantees, security and income guarantees and limited guarantees. Each of these guarantor loans differs slightly, but you can check out our blog on the different types of guarantor home loans for more information.

Who can act as guarantor?

Being a guarantor is a huge responsibility and comes with significant risks, which is why most lenders require guarantors to meet strict requirements. More often than not guarantors are parents, but in some cases, certain banks might accept in-laws, grandparents, siblings or legal guardians as guarantors.

Although individual banks and lenders have their own guarantor requirements, often they’ll require guarantors to meet the following criteria or similar:

Have sufficient home equity in their property or better yet, own the property outright
Have a stable income
Have a good credit score
Be an Australian citizen or a permanent resident
Be aged between 18-65 (although some lenders might accept older individuals or retirees as guarantors)
Own a property located in Australia

Increasing your borrowing power with a guarantor

One of the main benefits of having a guarantor is the ability to borrow with a small deposit, but in some instances, having the support of a guarantor could actually help to increase your borrowing capacity.

All banks and lenders have different lending criteria when it comes to guarantor home loans, but most banks will lend up to 105% of the purchase price when you have guarantor support. Some might even lend up to 110% depending on the circumstances. That means that you can also borrow a bit of cash to put towards other upfront costs, like conveyancing fees, building and pest inspections and stamp duty.

The amount you can borrow often depends on the purpose of your home loan. Here’s how much you could borrow with most common guarantor loans:

‍First-home buyers: 105% of the property value
‍Construction loans: 105% of the total land value and cost of construction
‍Refinancing: 100% of the property value
‍Debt consolidation and purchase: 110%of the property value
‍Investment loans: 105% of the value of your investment property

Although there aren’t usually any limits to the maximum amount you can borrow with a guarantor, if you’re borrowing more than $1 million some lenders require you to meet additional lending criteria.

And while having a guarantor can be a huge help when it comes to entering the property market, some lenders still like to see that you have a history of genuine savings, even if you don’t have the full 20% deposit.

Lending criteria for guarantor loans

Just because you have a guarantor backing your home loan doesn’t mean that getting accepted for a mortgage is a sure thing. Most banks and lenders still require you to meet several lending criteria before they offer you a loan.

Besides considering the guarantor's assets and creditworthiness, they’ll often look at the following factors:

‍Income, expenses and debt: Just like a regular mortgage, banks and lenders will assess your income, expenses and debt to check that you’ll be able to service your home loan. If you’re not able to make your repayments, it’ll be up to your guarantor to foot the bill, so they’ll also consider the guarantor's financial situation.‍
Credit history: Your credit history plays a key role in the application assessment process. If you have a good credit score, a lender will be more inclined to offer you a home loan. It can also impact the amount they’re willing to offer you and access to more favourable interest rates and loan terms.‍
Loan to value ratio (LVR): Depending on the type of guarantor loan you have, will often use the property you're buying as security for a portion of the loan. Because of this, the loan amount may be limited by the loan-to-value ratio (LVR), which is the ratio of the loan amount to the value of the property.

Pros and cons of guarantor loans

Before applying for a guarantor home loan, it’s important to make sure it’s the right option for you. Here are some of the main advantages of taking out a guarantor loan:

Increased borrowing capacity
Access to lower interest rates
Avoid lenders mortgage insurance (LMI)
Easier loan approval
Low or no deposit requirements

And while guarantor loans can offer a range of benefits, it’s also important to consider the drawbacks that come with guarantor loans:

Risk of financial liability to the guarantor
Strained relationships
Limited financial freedom for guarantor
Potential for legal consequences
Interest rate risks

Not everyone has access to a family member that’s able or willing to go guarantor on their home loan. If this is the case for you, it’s worth knowing that there are other options available to you. To learn more, read our blog on five things to consider if you don't have a 20% deposit.

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Unloan is a division of Commonwealth Bank of Australia.

Applications are subject to credit approval, satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000, and total borrowings per customer across all Unloan loans is $10,000,000. (For purchase loans a minimum 10% equity is required - however a Lenders Mortgage Insurance (LMI) premium and higher interest rate apply. In some cases, depending on the property’s location or type, an LMI premium may also be required for LVR between 70.01% to 80%). For loans with Lenders Mortgage Insurance (LMI) the minimum loan amount is $10,000, maximum loan amount is $3,000,000 and total borrowings per customer across all Unloan loans is limited to $3,000,000).

Unloan offers a 0.01% per annum discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The discount is applied for each loan you have with Unloan.

*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. In certain circumstances you may be required to pay a Lenders Mortgage Insurance (LMI) premium. Learn more about why this is applied and how it works. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.

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