Financing a Home in a Flood Zone
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.
