Lenders realise these days that young couples can find it hard to save substantial cash deposits when they are renting at the same time so a family pledge also known as a security guarantee, is a great way to get into a home with little or no cash deposit.

Simply put, parents can offer a chunk of their property (limited guarantee) to add to the security total of the home their children are buying to the point where the total borrowing becomes 80% of the total of the two properties together.

As an example, a young couple wants to buy a home at $750,000. They only have a small deposit of 5% , $37,500 but have a great rental history and have never dropped a payment. There are $23,000 worth of costs like stamp duty and lender fees etc, taking the total purchase price to $780,000 so they must take a loan out of $742,500 to bridge the gap, which is 99% LVR and far too high for the lender to say yes.

Mum and dad offer a guarantee amount of $178,125. When this guarantee is added to the value of the new home of $750,000, they have a total security base now of $928,125. Their new borrowing of $742,500 is now only 80% of the total security offered and this is a green light for a new home loan.

Once the debt reaches 80% of the new property, the parents guarantee can be released.

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