Studio apartments are becoming more popular with people who wish to live closer to the city and who do not have large families. But are studio apartments easy to finance? It really depends on where you are buying, how much you have saved as a deposit and how big the apartment is.
Studio apartments
Studio apartments, ‘bed sitters’ or ‘bedroom apartments’ differ from regular apartments in that they do not have any dividing walls that separate living spaces. Most of them simply have a small kitchenette which is included in the same room. There are no bedrooms and the apartments are quite small in size, with most of them around 40 m².
What are the lending guidelines?
Lenders have very specific rules when assessing whether people can borrow to finance to a studio apartment. If the property is less than 18 m², you will not be able to borrow.
If the apartment is 18 m² to 40 m², then the banks may lend you up to 80% LVR. However, where it is 40 m² to 50 m², most banks will lend you up to 90% of the purchase price. Additionally, depending on your financial situation and your income, some banks will allow you to borrow 95% LVR.
If you the apartment is bigger than 50 m², most banks will lend 95% of the property value. However, you must have strong finances.
If you are a low doc borrower then you will only be able to borrow for apartments over 40 m².
Note that if you are borrowing to buy a 1 bed room unit that is over 50m², standard lending guidelines will apply. This is primarily because one bedroom units, with separate living spaces attract a bigger market and are more sellable in the banks eyes.
What do the lenders consider?
As well as the size of the apartment, the lenders look at whether the unit has an internal living area, not including a garage or car space.
Banks assess your ability to borrow based on your income, your employment status, whether you are providing any genuine savings, as well as a variety of other factors.
If you doubt your ability to qualify for a loan based on the bank’s lending criteria or you need to borrow 100% of the purchase price, you may wish to consider getting your parents to guarantee your loan, using their property as security.
However, your parents would need to be made aware of all the risk associated with this arrangement.
Are studio apartments popular?
Whilst most families live in larger apartments or houses, studio apartments are very popular with singles and couples that don’t need large living spaces. For most young men and women who have moved out of home, many bedrooms are unnecessary. Additionally, those that work many hours may spend minimal time in their apartment and thus, have no need for multiple living spaces and outdoor areas, as they are rarely used.
Studio apartments are also popular with investors. Many like to buy these apartments in inner city areas and rent them out.
Advantages of buying a studio apartment
These unit types are highly affordable and often in some of the most sought after city locations. They are generally close to amenities and for investors, they generate good rental income.
Disadvantages of buying a studio apartment
One of the major disadvantages of this property type is its size. They are quite small and generally in condensed apartment blocks, so noise can be an issue.
As the apartment is in a studio complex there may be annual rates that need to be paid. These can amount to quite a significant sum, depending on where you live and the applicable charges.
Purchasing this property type
If you think that you can afford to finance this property, speak to a mortgage broker and apply today. This may be your solution to affordable city living or the investment property that produces great returns!
Borrowing with a rental guarantee income
A borrower source of income is one of the prime factors that the banks take into account when determining whether they should lend to you. This is because, they can determine if you are equipped to repay the loan amount, based on your earnings. But, in today’s society, income is increasingly varied.
Not everyone works 9-5 and earns a standard salary. Some people are contractors, earn high bonuses, receive a shift allowance or work on a commission basis. Then there are those that receive rental income, through a rental guarantee.
But do the banks accept rental guarantees as a legitimate form of income? If you are looking to borrow, based on this income type, please read on.
Rental guarantees: what are they?
As the name implies, a rental guarantee is where the owner of the property has a guaranteed right to receive rent for a fixed period, without worrying about finding alternate people to fill gaps in occupancy, or late/missed payments.
What kinds of properties have rental guarantees?
The main property types with guaranteed returns are generally leased to government agencies, who then rent the properties out to certain tenants. Some of the properties include ‘housing commission’ rentals, to those whose rent is subsidised by the Department of Housing.
Other properties include Defence Housing Australia rentals, which are managed by the Department of Defence.
Additionally, some developers have a rental guarantee for off the plan units or apartments.
Some display can also be purchased by an investor and then rented by a builder for the duration of its use as a display home. This is generally until all the houses in the surrounding area are sold off.
How much will the banks lend?
Investors that receive a rental guarantee may be entitled to borrow up to 95% LVR of the property that they wish to purchase. If you are a low doc borrower, you may only be entitled to borrow 80% of the purchase price.
Are the banks stricter than usual?
As a rental guarantee is not a conventional form of income, banks have more conservative lending practices. Most banks believe that whilst the income is fixed, there is an added risk involved due to the technicalities associated with the assurance.
Most rental guarantees are also subject to a caveat on the property that protects the tenant’s interests. This means that if an investor wants to sell his property tomorrow, but there is a rental guarantee in place, the new buyer must be willing to continue renting that property out for the term of the tenancy.
Consequently, these properties may be harder to sell and may sit on the market for lengthy periods before attracting a buyer.
Advantages and disadvantages of a rental guarantee
A rental guarantee is great for investors who want to rent a property out, but are concerned that their tenants will not pay their rent on time or will prematurely terminate the lease.
The guarantee prevents these situations from occurring and therefore, the investor is not at risk of losing money. These guarantees are particularly strong when given by government agencies and departments
However, rental guarantees are still subject to cancellation, therefore, most lenders may not consider the rental guarantee, despite the lengthy term of the lease.
Banks are more likely to consider the current market value of the rent and determine the rental income you receive, based on that value. They are less likely to consider a rental guarantee.
To maximize your chances of approval, it is important to have other income sources, in addition to a rental guarantee.
Whilst many buyers want a home that they can move straight into with no hassle or stress, others prefer buying houses which they can renovate and style to their taste. Although renovating can be great for couples, families who want to change aspects of the houses design or layout, investors are also attracted to ‘renovators’ as they are generally much cheaper than properties that don’t require any repair work. However, if you found the perfect house to renovate, will the banks still lend to you, despite its current state. Read on to find out more.
Can I borrow if I plan on renovating?
Most banks and lenders have strict lending policies and guidelines. As a result of their conservative lending practices, they are less inclined to lend to borrowers who are using a dilapidated property as security, despite your intention to renovate.
Why do the banks view ‘renovators’ this way?
Homes that need extensive repairs are valued less than finished dwellings for obvious reasons. As such, if you were to buy a property with the intention of renovating, and then run out of funds during the renovation, or simply decide not to continue, not many people would be willing to buy this property. Accordingly, the risk of loss for the banks would be high. Luckily there are still some banks that will lend to those who want to renovate.
How much will the banks lend?
If you have bought a property and then decided not to renovate, you may be entitled to borrow 80% of the property value. However, this largely depends on the current state and condition of the house.
Where the property needs on minor renovations, most banks will allow you borrow up to 90% LVR. However, where the repairs are small cosmetic renovations to add aesthetic value to the property you may be entitled to borrow up to 95% LVR, plus additional funds to pay for the renovation.
If the property that you purchased requires extensive renovation, the banks may lend you 80% of the purchase price. However if you have hired a builder, this amount may be increased to 95% LVR, as well as the cost of renovating.
However, where you have to knock down and rebuild the existing home, the banks will not include the value of the property and you will generally be entitled to borrow 90% of the land value, plus costs of building, if you have hired a builder.
If you are considering doing the renovations yourself, without using a licensed builder, then you may only be allowed to borrow 60% LVR, plus any funds needed to finance the renovation.
What if I’m a low doc borrower?
There are quite a few lenders that will only allow you to borrow 60% of the purchase price. However, some banks will increase the amount you are able to borrow, to up to 80% LVR, plus the cost of building.
Remember!
The amount that you can borrow mainly depends on the type of home you and buying its current condition. This is one of the main factors that the banks take into account when lending to borrowers who wish to renovate.
Where the property is in such a good condition that it could be put on the rental market, you may have a better chance of a lender that will use general lending guidelines. You may be entitled to borrow up to 100% of the purchase price! If you are a low doc borrower, this amount is reduced to 80% LVR.
Risks involved in renovating
Taking on a home renovation involves an element of risk. This is why you need to ensure that you have budgeted correctly and borrowed enough to cover any added costs. If you cannot finish the renovations without additional funds, you are likely to encounter issues.
The house will be difficult to sell, or will sell undervalue, resulting in significant loss to the banks. This is why you need to plan everything out before taking on a project. If you do, things are more likely to go smoothly and you can start custom designing your own home or fix it up to sell for a neat profit.
When looking to a purchase property, everybody loves a bargain! Buying a home that is priced below market value is an attractive option for those who do not have a large deposit.
Instead of entering the real estate market, property is purchased through private sale. These ‘favourable sales’ usually involve parties that have previously known each other.
Favourable sales are quite rare and most people looking to buy have to enter the real estate market through the regular channels.
However, getting finance to fund the purchase of ‘below market value’ homes can be quite difficult. Banks view these purchases differently and may be reluctant to lend. But a ‘favourable sale’ shouldn’t mean that you can’t borrow. Some lenders can still help.
‘Favourable sale’: what do the banks mean?
A favourable sale is the name given by the banks to a property that is priced below market value. Often individuals encounter the opportunity to purchase such a property in one of two scenarios:
- Children buying a property off their parents who agree to sell it for a cheaper price: some parents may do this to help their children get established through home ownership.
- In lieu of a debt: some people are offered the chance to buy a property for a reduced priced, as consideration for money borrowed.
Although you may be getting a great deal, the biggest issue is getting finance to buy the property. The banks do not view these sales as they do the sale of regular homes.
What do the banks think?
Most favourable sales are made between two parties with an established relationship. Accordingly, most people do not feel the need to involve a real estate agent, as this is generally seen as an unnecessary cost.
However, without a real estate agent, there is a higher chance that the valuation of the property could be altered and the bank may end up lending more than the property is worth. As a result, some banks may decline your loan outright. Although, there are some banks that will ensure the valuation is correct and then on that basis, approve your loan.
How much can I borrow?
Generally, most lenders will only allow you to borrow 80% of the property value. This is because of strict Lenders Mortgage Insurance policies. However, there are other lenders that may approve you for a much higher amount, especially where there are no issues with the valuation. Whilst almost all banks require that you provide 5% genuine savings, some may approve your loan even where you have no savings. It all depends on the circumstances of the sale and the strength of your finances.
Banks prefer borrowers that have a stable income and job, as they pose less risk of defaulting on the loan.
Are there any other extra costs?
It is important to remember other costs such as LMI and stamp duty. However, LMI will only apply where you are borrowing over 80% of the purchase price. There are some lenders that will waive the requirement for loans over 85%, but this will be assessed on a case by case basis. Stamp duty is assessed independently, but can be quite a large amount. It is important to bear this mind before committing yourself to a loan.
Getting approval
If you know someone who is offering their property to you for a price that is below market value, then it is best to speak to an expert mortgage broker who can help you apply for a loan. Their help will ensure that the process is as smooth as possible and that you get approval.
Investing in a hotel conversion or a strata title hotel property is becoming quite common with many older hotels now being renovated and re-sold to accommodate for a growing population. Units and apartments are in high demand, especially in inner city areas that are close to shops, schools, universities and other amenities.
Whilst a hotel conversion sounds like a great investment, they generally require quite a big financial commitment. Further, it may be difficult to get a loan as some banks have restrictive lending policies for this property type. However, there are ways to get approval!
What is a hotel conversion?
A hotel conversion is used to describe the transformation of a former, often older hotel, into an apartment block, containing separate strata title units.
However, they differ from most regular units in that they may have shared kitchen and bathroom facilities on the one level. Once the units are renovated, they are put up for sale. Investors usually buy these apartments and rent them out.
Converted hotels can be popular with singles, couples, students or retired persons. As they are quite small in size, there is a limited market of buyers and renters. However, most converted hotels are in city areas and as such, they can be quite popular.
What is a strata title hotel property?
A strata title hotel is the name given to a hotel that comprises of rooms that have each been individually purchased by investors and are being rented by the hotel. Unlike converted hotels, the actual hotel still manages the unit.
This property type is treated by the banks as a regular investment and as the property is rented back to hotel, there is a guarantee of return. Most banks will approve a loan of up 80% of the purchase price and 70% for low doc borrowers.
How much can I borrow?
If you are looking to borrow money to finance a hotel conversion most banks will require a 15% deposit, thereby allowing you to borrow up to 85% LVR. However, where you cannot provide adequate documentation to prove your income, it is advisable that you go low doc.
This option is popular with self-employed individuals. If you get approved for a low doc loan, you may be able to borrow 80% LVR. Note that as with most low doc loans, interest rates may be higher.
What do the banks think?
Hotel conversions are an unusual property type and as such there is a higher risk involved in lending. Regular homes are more sellable and in higher demand and the banks can be certain that they will be able to recover any funds through re-sale. The shared facilities and small living spaces in converted hotel units are not desired by many buyers. Equally, the banks recognise that investors may have difficulty renting these apartments out. Accordingly, most banks will be reluctant to lend and many will decline your loan outright. But how can you make the banks see that you are a responsible borrower? Read on to find out how you can get your loan approved.
How can I get approval?
Investors with big portfolios and a stable income are usually favored by most major banks. However, borrowing for a hotel conversion or using a converted hotel unit as security for a loan can be difficult. This is why it is essential that you have a strong credit history and can demonstrate that you have the ability to repay the loan.
Getting in touch with an expert broker will increase your chances of getting approval. We can help formulate your application in the best possible light and ensure that you get a competitive loan package and great discounts. Speak to us today.
Is your property located in a flood zone? Despite living in a beautiful part of Australia, owning a property in those areas is often risky. Due to the erratic nature of the weather, your house could be damaged or destroyed during a severe storm or flood. Accordingly, most banks are reluctant to lend out of a concern that the property, which secures your loan, will not be livable or sellable if a flood were to occur. So how do you get finance in a flood zone? What do you need to provide the banks with? Read on to find out more.
What is a flood zone?
A flood zone or flood ‘overlay’ is an area that is at risk of flood due to location. The flood may occur as a result of rising sea levels in a coastal area, or in a very dry, arid area as a result of high rainfall and overflowing rivers and dams. Generally, the storm water system in place cannot accommodate for such a large amount of water and consequently, the area floods. If you live in a flood zone, the Bureau of Meteorology: http://www.bom.gov.au/ can help you keep up to date on the latest weather warnings.
Is my house at risk?
If your house is in an area that has been declared as a flood zone then it is likely that your property is at risk of flooding. Where the house you are buying is not on stilts, it may be more susceptible to damage. Therefore it is important to know your zone classification and get an insurance policy that covers this risk.
Can I get a loan?
It all depends on how your property is classified. If there is a chance that there could be a flood in your area every one hundred years, this is expressed as 1:100. Where flooding may occur more frequently in your area, it may be difficult to get finance even though you may have insurance. If there is a 1:50 year chance of flooding, the bank will assess your situation on a case-by-case basis. Where you have strong finances, you may get approval for a home loan.
How much will the banks lend?
All first home buyers and investors will have to provide 5% of the purchase price as a deposit. Where you do not have adequate documentation to qualify for a regular loan, you may have to go low doc. Borrowers of this kind can borrow 80% LVR.
You may also be eligible for competitive rates and other attractive discounts.
What do I need to provide?
Getting finance for a property in a flood zone can be exceedingly complicated. Your property is not like a regular property that is not susceptible to natural disasters. Because of this, there is more risk involved in lending to you.
When applying for a loan it is important to provide the banks with all the documentation relating to the flood zoning, and recent histories of flooding and a copy of your insurance policy. This information will help to comfort the banks and they will be more likely to approve your home loan.
Will I get approval?
Where you have a strong financial situation, stable employment and a good credit history, most lenders will give these factors considerable weight and may still approve you for a home loan. The key is to speak to the right mortgage broker who can formulate your application in the most favourable light to ensure that you get the mortgage you need to buy a home. Speak to us today.
Dual-occupancy dwellings such as duplexes and granny flats are common with smaller families, couples and those with extended relatives. Although they are houses just like single dwellings, the lending policy for this property type differs from bank to bank. Read on to find out some important information before applying for a loan to purchase a duplex.
What is a duplex?
Just like other forms of dual-occupancy dwellings, a duplex is two properties on one block of land. Commonly, the properties are separate by a common wall and sometimes they can be two distinct dwellings.
These are to be distinguished from granny flats which are simply a smaller self-contained unit annexed to the back of a dwelling or detached.
Granny flats are more commonly used when large families have teenagers that need a private living space, older parents who need looking after or as a guest house for visitors.
However, duplexes are usually purchased by small families, couples, or singles that don’t need much living space, as duplexes by their very nature are smaller.
How do lenders view dual-occupancy dwellings?
Banks take a very traditional and strict approach to lending for those wishing to buy a duplex. Most lenders form the view that duplexes are not in high demand and that the more popular property type are single dwellings. Accordingly, in the event that they had to sell your property it would make it difficult to recoup their funds.
Because of this, in order to get approval for a loan it is essential that you have employment stability, good savings and a clear credit history.
Why do lenders take this view?
Generally any lending policy is based on experience. It could be that the banks have experienced difficulty in the past with those buying a duplex and borrowing funds. As such, they profile you and your application into a category of risk.
The fact that you are buying a dual-occupancy dwelling and not a more common single dwelling means that the banks automatically believe that there is a high risk in lending to you because of your property type.
However, there are some banks that will lend and still offer a great loan package.
How much can I borrow?
If you were to approach the major banks, you may only be entitled to borrow 80% LVR or 60% LVR if you are applying for a low doc loan. However, there are some lenders who will allow you to borrow more.
All lenders require a minimum 5% deposit when applying for a loan. If your parents are willing to become guarantee the loan using their property as security you may be able to borrow 100% of the purchase price.
- If you are a first home buyer or investor, you can borrow up to 95% LVR.
- If you are applying for a low doc loan you may be able to borrow up to 80% LVR.
- Where you are undertaking a construction project it may be possible to borrow 95% of the total land and contract price.
Why buy a duplex?
If you don’t need a large living space a duplex is ideal. In many inner city and suburban areas duplexes are becoming quite common.
This is primarily due to an increased demand in housing across Australia. Accordingly, although the banks may view duplexes as an unpopular property type, there are still many people who are interested in buying a duplex.
What you need to know
It is important to approach the right lender when applying for a loan that will be used to purchase a duplex. This is because most lenders have strict policy and only a select few are lenient.
Where you have genuine savings and a good credit history, getting approval should be a breeze. If you think you meet this criteria then it may be time to start shopping around for that duplex!
Investing in a display home can have many benefits! Instead of having a regular tenant that may cause you stress or damage the property, the builder who constructed the house sells it to you and leases it back off you.
This neat little arrangement can provide big rental returns.
Alternatively, purchasing a former display home to live in can also be great.
They generally have all the added extras that regular homes do not have and have less wear and tear.
So have you ever considered buying one? Need a loan to fund the purchase? Read on to find out how you can get approval.
What is a display home?
Display homes are houses in display villages which are constructed for the sole purpose of providing people with an idea of what certain homes will look like when completed. This means that those wishing to buy land and build on the block can visit a few display villages and builders and see which homes they like before committing to the construction process.
Who buys display homes?
Once a display home is no longer being used for that purpose, it may be re-sold. However, this usually does not happen for 5 years.
This is why display homes are typically purchased by investors who buy the property and then lease it back to the builder. This way the builder has made money from the sale and has that money to use on other projects, but still has the property to showcase.
Can I borrow to buy a display home?
If you have found a great home in a display village you may be looking for finance to purchase the home. However, some banks take a different view of this property type, making it difficult to borrow.
Although, there are some lenders who will approve your loan, provided you have the minimum 5% deposit and are financially stable.
That way, the banks can be sure that you will repay the loan.
How much can I borrow?
The loan amount that you will qualify for depends on the state of your finances and whether you have all the required documentation.
For first home buyers, the standard lending criteria for existing dwellings would apply. Investors can borrow up to 90% LVR.
Approval Criteria for investors
Banks have very strict lending criteria when it comes to display homes. Generally, most lenders will not allow you to borrow unless the lease contract has been drawn up and organized and there is a certainty that there will be a tenant.
- If you are wishing to borrow 75-80% LVR than the lease can be no longer than two years.
- Some banks allow you to borrow 90% LVR but at a slightly higher interest rate.
However, it largely depends on the state of your finances. Depending on the circumstances of your case, the banks may more flexibly apply policy. This means you may still get a great loan package and low interest rates. It’s all about applying with the right lender!
Positives and negatives of buying a display home
If you an investor, buying a display home can offer solid returns without the hassle associated with renting to other tenants.
If you are a first home buyer who wants to live in a housing estate and has found a great display home that is now for sale, it may be in much better condition than comparative houses that were built at the same time.
For this reason, buying a display home can be better than buying another existing dwelling. It may also have top end fixtures and appliances that other regular homes would not have.
However, a display home is located in a display village and for this reason it may not be the most ideal place to live. Any purchase should be considered carefully.
As when making any big decision, it is important to weigh these factors up to decide whether you should invest or purchase to live in a display home.
