How does a family guarantee home loan work in WA?
A family guarantee lets a parent or close family member use the equity in their home as security for part of your loan, so you can buy now instead of waiting years to save a full deposit. No cash changes hands, it can help you skip LMI, and the guarantee can be released down the track.
Short answer: the deposit is the wall most people hit, and a family guarantee is one of the best ways over it. You scrape together a deposit, then realise the stamp duty and fees on top mean another year of saving while prices keep moving. A family guarantee changes that. A parent or close family member uses the equity in their own home as security for part of your loan. That covers the gap in your deposit, so you can buy now. No cash actually changes hands. Done right it can also save you lenders mortgage insurance. And the guarantee is not forever. It comes off once you have built up enough of your own equity. Here is exactly how it works in WA.
What is a family guarantee home loan?
Short answer: a family guarantee is where a family member, usually a parent, offers the equity in their property as extra security for part of your home loan. It covers the deposit you are short, so you can borrow without a full 20 per cent saved. No money moves between you. The lender simply holds a limited guarantee over their property for a set amount.
The term comes from exactly what it sounds like. Someone guarantees the part of the deposit you cannot cover yet. In WA that family member is usually a parent whose home has grown in value over the years and had the loan paid down. There is equity sitting there doing nothing. That equity becomes the security that gets you in the door. It is the same equity idea we cover from the owner’s side in using your home equity to invest, just pointed at helping a family member buy instead.
How does the equity actually work?
Short answer: the lender looks at your guarantor’s usable equity, not the full equity. Most lenders work on up to 80 per cent of the property’s value, minus whatever they still owe on it. The guarantee is then limited to the amount you are short, not the whole loan, so your guarantor is only ever on the hook for that set figure.
You cannot just point at a paid-down home and draw on all of it. Lenders work on usable equity, which is commonly up to 80 per cent of the value less the current loan. The worked examples below show how that lands for two different WA family homes, with the arithmetic done.
Working out a guarantor’s usable equity
| Step | Example A | Example B |
|---|---|---|
| Guarantor’s home value | $700,000 | $550,000 |
| Lender works on 80 per cent of value | $560,000 | $440,000 |
| Less their current home loan | $250,000 | $300,000 |
| Usable equity available | $310,000 | $140,000 |
In both cases there is plenty to cover a limited guarantee of, say, the $100,000 a buyer might need to reach a 20 per cent position on a $500,000 purchase. Your guarantor is guaranteeing that set amount, not your whole loan. You still have to meet the lender’s servicing criteria in your own right. The guarantee gets you past the deposit wall. It does not replace being able to afford the repayments.
Does a family guarantee help you avoid LMI?
Short answer: yes, usually. Lenders mortgage insurance normally applies when you borrow more than 80 per cent of a property’s value, that is, with less than a 20 per cent deposit. A family guarantee tops up your security to that 80 per cent mark, so the loan is no longer seen as high-LVR, and the LMI premium can be avoided entirely.
LMI protects the lender, not you, and you are the one who pays it, usually as a lump sum up front. The ASIC Moneysmart definition spells that out. Because a family guarantee brings your combined security to the 80 per cent line, that premium can simply fall away. On its own, that can be worth getting the structure right. It is one of the deposit paths we weigh alongside the low deposit options in WA and the WA Government’s own Keystart low-deposit loans, which we compare in our guide to Keystart or a bank. The right one depends on your situation.
A family guarantee is not a gift of cash. It is a loan of security, and the best part is that it is designed to be given back.
Can the guarantee be removed later?
Short answer: yes, and that is the part people miss. The guarantee is not permanent. Your repayments and any growth in the property build your own equity over time. Once your loan sits at or below 80 per cent of your home’s value on its own, the guarantee can be released. Your guarantor is then off the loan entirely.
This is what makes it a loan of security rather than a lifetime commitment. Say you buy today and over a few years your home rises in value while you chip away at the loan. Once your own position reaches that 80 per cent mark, we can go back to the lender and have the guarantee lifted. Your parents go back to exactly where they were, their home their own again. You carry the loan on your own two feet. Planned properly, the release is the goal from day one.
What are the risks of a family guarantee for the guarantor?
Short answer: real ones, and they deserve respect. If the borrower cannot make repayments, the guarantor is liable for the guaranteed amount, and their home is the security behind it. A guarantee can also affect the guarantor’s own borrowing while it is in place. This is why everyone goes in with eyes open and independent advice.
We will never sugar-coat this part. The guarantor is genuinely on the hook for the amount they guarantee, and in the worst case a lender can look to their property. Moneysmart’s guide to going guarantor on a loan lays the risks out plainly. Lenders require the guarantor to get independent legal advice before signing, for exactly this reason. It works best where the buyer has steady income and good habits, and where the family has gone in clear-eyed together. Done that way, it is one of the most powerful ways a WA family gets the next generation into a home.
How do you set up a family guarantee in WA?
Short answer: start with a broker, not a single bank. Lenders treat family guarantees very differently, on who can be a guarantor, how much equity counts, and how the release works. A broker matches your situation to the lender that suits it, sets the structure up properly, and plans the release from the start. Your guarantor gets independent legal advice before anything is signed.
If you only ask your own bank, you get one answer. Across a wider panel, the differences are big. Here is how it runs with us.
Getting it set up, step by step
- Check you can service the loan. The guarantee solves the deposit, not the repayments. We confirm the loan is comfortable for you first.
- Work out your guarantor’s usable equity. Their home value, less their loan, at the lender’s usable-equity level. That sets what is possible.
- Size the guarantee to the shortfall. Limited to what you need to reach 80 per cent and skip LMI, never more than that.
- Match it to the right lender. Guarantor rules vary widely across the panel. We place it where your whole situation fits.
- Plan the release and get advice. We map how the guarantee comes off down the track, and your guarantor gets independent legal advice before signing.
From the broker’s desk: a family guarantee is one of the most satisfying things we set up, because it is usually the difference between a young family buying now and buying in three or four years at a higher price. The structure matters though, and so does the family conversation around it. We take the time to explain it to everyone involved. We size the guarantee tightly, so the guarantor is only ever exposed to what is needed, and we plan the release from the first meeting so it is clearly temporary. If a parent in the family has equity sitting in their WA home and someone in the next generation is ready to buy, it is well worth a chat. We will walk you all through it honestly and tell you whether it stacks up.
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Start with a chatThis guide is general information for the Australian market, not advice about your situation. Lender credit policy changes, and what applies to you depends on your circumstances. Pilbara Finance is a credit representative (478535) of Mortgage Specialists Pty Ltd, Australian Credit Licence 387025.