The Family Guarantee: Buy Sooner, Skip LMI, With Help From Family
Smart Market Entry
The Family Guarantee: Buy Sooner, Skip LMI, With Help From Family
Ian Freeman · Finance 365
Saving a full 20% deposit is one of the biggest hurdles for first home buyers — not because their income can't support a mortgage, but because the deposit takes years to build. A family guarantee is one of the more underused strategies for closing that gap, and it doesn't require anyone to hand over cash.
What a family guarantee actually is
A family guarantee (sometimes called a family pledge or limited guarantee) lets a family member — most commonly a parent — use the equity in their own home as additional security for your loan, instead of gifting or lending you money directly. Nothing changes hands financially. Their property simply sits alongside yours as extra security, which can allow you to borrow a higher percentage of the purchase price without paying Lenders Mortgage Insurance.
Structured properly, this is a limited guarantee — it only covers a defined portion of the loan, not the whole thing. The guarantor isn't putting their entire home on the line for your full mortgage; they're covering the gap between your deposit and the 20% threshold most lenders use to trigger LMI.
Why it's worth considering
You avoid Lenders Mortgage Insurance entirely. LMI can add a substantial one-off cost to a loan, and a family guarantee sidesteps it completely.
You can often borrow up to 100% of the purchase price plus costs. Rather than needing 5–20% saved, some lenders will lend against the guarantee alone, provided serviceability stacks up.
The guarantor's exposure is limited, not total. A well-structured limited guarantee caps their risk to a specific dollar amount, not their entire property.
It can be temporary. Once you've paid the loan down or the property has grown in value enough that your own equity covers the gap, the guarantee can typically be released and the guarantor's property freed up again.
How it typically works, step by step
Step | What happens |
1. Assess eligibility | Not every lender offers family guarantee loans, and policies vary on which family relationships qualify and how much of the guarantor's equity can be used. |
2. Structure the guarantee | The loan and security are structured so the guarantee is limited to a defined amount — typically enough to bring your effective deposit up to the 20% mark. |
3. Independent legal advice | Guarantors are required to get independent legal advice before signing, so they fully understand what they're agreeing to. This isn't a formality — it's an important protection for them. |
4. Settle without LMI | The purchase settles with the guarantee in place, and no LMI premium is paid. |
5. Release the guarantee | Once enough equity has built up through repayments and/or growth, you can apply to have the guarantor released, restoring their property as unencumbered security. |
"A family guarantee isn't a gift and it isn't a loan — it's a well-defined promise, and the definition is what protects everyone involved."
What guarantors should weigh up
This strategy asks a lot of trust from a family member, and it's reasonable for them to want clear answers before agreeing. Worth discussing openly as a family: what happens if repayments are missed, how the limited guarantee amount is calculated, what triggers a release, and what the guarantor's own borrowing plans look like over the next few years — if they're planning to refinance or downsize, that needs to be factored in too.
Worth knowingWorth knowing
Because the guarantor's own home is used as security, it's worth confirming with them, and with an independent lawyer, that they fully understand the guarantee is limited in scope before anyone signs anything. This is a decision that affects their financial position too, not just yours.
Who this suits
Family guarantees tend to work best for buyers with solid, stable income who can comfortably service the loan on their own, but simply haven't had the time to build a full deposit — and who have a family member both willing and financially comfortable enough to offer the guarantee. It's one of several ways to bring your entry date forward; a genuine savings history, the government's low-deposit scheme, or a smaller starter purchase can all achieve a similar goal depending on your situation.
Want to know if a family guarantee could work for you?
We'll walk through eligibility, how much guarantee would actually be needed, and what the conversation with your family member should cover.
This article is general information only and doesn't take into account your personal financial situation or objectives. Guarantor arrangements carry real financial and legal implications for the guarantor — independent legal advice is a requirement, not an optional extra, before anyone signs.
Ian Freeman, Finance 365 — Credit Representative Number 439731 of Australian Credit Licence 384704 (Finsure Finance and Insurance Pty Ltd).