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If you can't repay your mortgage for whatever reason, your lender can ultimately sell the property and recover the loan. But if the property is unusual in some way, your lender may decide that it will be too hard to sell. This makes lending to you a riskier proposition.
Your home loan application might get rejected if you're buying an off-the-plan unit, for example, or a house in a small mining town. Or the lender might offer you a loan with a lower loan-to-value ratio (LVR), meaning you need to provide a bigger deposit.
Here are some common risky property types and some tips for strengthening your application.
Buying an off-the-plan unit often means putting money down for a property that doesn't yet exist. If the final product is worth less than what you paid for it, or the market has fallen since you signed the contract, your lender may decide not to finance your property.
Do your research on the property you're buying and the developer's track record, and check your contract closely before you buy. Apply for finance before settlement as early as you can. This gives you time to look at other lenders if your application is rejected.
Buying a property in a small country town isn't inherently risky. But there is definitely less demand in some small towns and that limits the property's sellability.
The riskiest towns are very small towns and ones reliant on a single industry, such as tourism or mining. If a mine closes or a disaster ruins the local environment, property values in such a town could fall. This exposes your lender to a bigger risk.
Lenders often view studio apartments and tiny cottages as risky properties. Again, this is because there is less market appeal for such small dwellings and they can be harder to sell.
Some lenders will actually evaluate this by postcode. If you're buying a small unit in an area with a large concentration of similar properties, your application might get rejected. Some lenders may accept your application but require a 30% deposit rather than the traditional 20%.
The viability of a commercial property depends on the success of the tenant's business as well as the property itself. It's a more complex lending arrangement and requires more diligence on the lender's behalf.
If the property has long-term tenants with successful businesses, you're in a better position, but you will need to be able to demonstrate this in the application. The location and quality of the property itself also matter, of course.
It's harder to obtain finance for highly specific types of investment properties, such as serviced apartments and student accommodation units. These types of properties come with businesses attached and pre-existing arrangements with property management companies.
Such investments can be lucrative ones, but with greater complexity and a much smaller pool of potential buyers, they can be harder to obtain finance for.
Properties with specific restrictions and unique details can be tricky to finance. Heritage-listed houses offer less room to renovate and are less appealing to many home buyers (although they can be very attractive to the right buyer).
Apartments on a company title can be another difficult case. Here, the entire apartment is owned by a company listed on the title. As a buyer, you essentially become a shareholder of the company with the right to occupy a unit and access shared facilities.
Some company title agreements can be very restrictive. It's even possible that the other shareholders could vote you out of the company and thus lose your unit. Lenders are understandably more cautious about company title units.
If you are hoping to buy any property like the ones mentioned above, don't despair. When trying to get a mortgage for any of riskier property type there are a few steps you can take to improve your chances significantly.
After entering your details a mortgage broker from Aussie will call you. They will discuss your situation and help you find a suitable loan.
The Adviser’s number 1 placed mortgage broker 8 years running (2013-2020)
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Hi there,
I am looking at purchasing a property that is Commerical Zoned 1. It is a shop front with a residence at the rear attached. Can I apply for a Residential Home Loan or do I need a Commerical Loan? Thanks in advance.
Hi David,
thanks for the question.
Generally speaking, mixed use properties require a commercial loan, but this will always depend on the lender, as some might still allow a residential loan to be used. Speaking to a lender you’re interested in or a trusted mortgage broker might be a good option to see what options you may have.
I hope this helps,
Marc.
If I get a loan for a residence that also has a businesd which type of loan would I need to get.
Thank you
Tennille
Hi Tennille,
Thanks for your question.
If the property is to be your main residence, it may be more appropriate to obtain a home loan.
If you find that none of these loans are suitable for your situation, there is always the option of speaking to a home loan broker. They’ll be able to help you further should need further help in narrowing down a suitable home loan option.
Cheers,
Shirley