Is a guarantor or a cash gift better for a first home buyer?

It depends on what you're buying. Under the First Home Guarantee price cap, a gift usually wins because it lowers your loan and your repayments. For a place that needs work, a guarantor can let you keep your savings for the renovation.

Does a cash gift count towards the 5% scheme deposit?

Not at every lender. Some want the scheme's minimum to come from your own genuine savings and won't count a gift towards it, while others will. That's worth checking before the money moves.

What are my parents risking if they go guarantor?

Part of the equity in their property is used as security for your loan, usually capped at a set amount. If you couldn't pay and the property was sold for less than the loan, the bank could look to them for the shortfall up to that amount.

When do my parents come off as guarantor?

Generally once your loan gets down to around 80% of your property's value, through repayments, growth or both. I normally say that's a five year game plan.

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Guarantor or a cash gift from my parents: which one works better?

Bayley Clarke · Mortgage broker on the road · Last checked 1 November 2026 · 4 min read

The short answer

It ultimately comes down to what your borrowing capacity looks like and how a guarantor versus a gift fits into that picture. If you're a first home buyer buying under the First Home Guarantee price cap, the gift probably becomes more of a no-brainer, because it reduces what your ongoing loan amount is going to be.

However, if you're buying something that needs a little bit of love and you've already got enough of a deposit, your parents going guarantor might be the better option. In theory you can borrow the entire purchase, put no cash in, and use the savings you've built up to fund the renovations.

The 90 second version, filmed from the driver's seat. The rest of this page is the detail underneath it.

Start with the pathways, not the money

The way I think about it, if you've got access to a gift or a guarantor, we want to look at what pathways that opens up for you. They do very different jobs. A gift is cash that goes into the deal and stays there, so you borrow less. A guarantee is your parents putting up some of the equity in their place as extra security, so the bank is comfortable lending you more without you needing a bigger deposit.

Neither one changes what you can afford on your own income. The bank still has to see that you can make the repayments on the full loan yourself, from your income, your expenses and any debts you've got. So the real question is which one leaves you in the better spot once the keys are in your hand.

When the gift makes more sense

If you're a first home buyer and the place you want sits under the First Home Guarantee price cap for your area, you can already get in with a 5% deposit and no lenders mortgage insurance. So you don't really need a guarantor to solve the deposit problem. What a gift does on top of that is bring the loan down, which brings the repayments down, every month, for as long as you've got the loan.

That's why I'd say the gift is probably the no-brainer on that path. One thing to line up first: some lenders want the scheme's minimum deposit to be your own genuine savings, and they don't all count a gift towards it. That's a which-bank question, and it's worth sorting before your parents transfer anything.

When the guarantor makes more sense

Now flip it. Say you're buying something that needs a bit of love, a kitchen, a bathroom, a roof, and you've already got some savings behind you. If your parents go guarantor, several lenders will fund up to the full purchase price, and a few will go a little over to cover costs, without lenders mortgage insurance. That means your own savings don't have to go into the deposit at all.

So instead of handing your cash to the seller, you keep it, and it funds the renovations once you've settled. The trade-off is a bigger loan and bigger repayments, and your parents' property is on the line as security until your loan gets down to around 80% of what your place is worth. I normally say that's a five year game plan, sooner if the renovation lifts the value.

The honest bit: run both before you pick

It's a matter of weighing up the options, what the payoffs look like, and running those hypothetical scenarios side by side: the loan size, the repayments, what's left in your account, and what your parents are actually exposed to. On paper one usually wins pretty clearly once you see the numbers.

And your parents should get their own independent legal advice before they sign a guarantee. Most lenders require it anyway. It's their home being used as security, so they need to understand it as well as you do.

Want to see the gift and the guarantor side by side?

A 30 minute call. We run both scenarios on your numbers, the loan, the repayments and what's left over, so you and your parents can pick the one that fits.

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Next question

If my parents go guarantor, what are they actually risking?

Not their whole house. It's generally a limited guarantee, a slice of their equity, until your loan is under 80% of your home's value.