When to Consider Property Types for Your Home Loan

When you apply for a home loan, the type of property you're purchasing plays a significant role in determining your loan amount, interest rate, and overall borrowing capacity. Different property types carry varying levels of risk for lenders, which directly impacts the home loan products and home loan packages available to you.

Understanding how lenders assess property types can help you make informed decisions and improve your chances of securing favourable home loan rates.

How Property Types Impact Your Home Loan Application

Lenders evaluate properties based on their marketability, condition, and potential resale value. These factors influence whether you'll receive approval, what interest rate you'll pay, and your loan to value ratio (LVR).

The property type affects several aspects of your home loan:

• The interest rate offered by lenders
• Whether you'll need to pay Lenders Mortgage Insurance (LMI)
• Your maximum borrowing capacity
• The availability of certain home loan features
• Whether you can access an offset account or portable loan options

Standard Residential Properties

Standard houses and units in metropolitan and regional areas typically receive the most favourable treatment from lenders. These properties are considered lower risk, which means you can often access:

• Lower variable interest rate and fixed interest rate options
• Higher LVR limits (potentially up to 95% with LMI)
• More flexible home loan options from banks and lenders across Australia
• Interest rate discounts and rate discount opportunities
• Full access to home loan features like linked offset accounts

For an owner occupied home loan on a standard residential property, you'll typically find the widest range of variable rate, fixed rate, and split rate products. Whether you're looking at principal and interest or interest only repayments, these properties provide maximum flexibility.

Apartments and Units

While most apartments and units are treated similarly to houses, some factors can affect your home loan application:

Size Considerations: Studio apartments or units smaller than 50 square metres may attract higher interest rates or reduced borrowing capacity. Some lenders won't provide finance for very small dwellings.

Building Height: Apartments above certain floors (often above 20 storeys) may face restrictions or require additional documentation.

Serviced Apartments: Properties in complexes with hotel-style services may be classified differently, potentially limiting your home loan options.

Rural and Semi-Rural Properties

Properties located outside metropolitan areas require careful consideration when applying for a home loan. Lenders assess these properties based on:

• Population of the surrounding area
• Distance from major towns or cities
• Local employment opportunities
• Property marketability

Rural properties may face:

• Higher interest rates compared to urban properties
• Lower maximum LVR (often capped at 80%)
• More stringent valuation requirements
• Reduced availability of certain home loan products

If you're looking to achieve home ownership in regional areas, it's important to compare rates and understand which lenders specialise in rural lending.

Properties on Large Land Holdings

Homes situated on acreage or properties larger than a standard residential block (typically over 2-5 hectares) may be classified as semi-rural or rural, even if they're close to urban centres.

These properties often require:

• Higher deposits to maintain acceptable LVR levels
• Detailed valuations addressing land use
• Evidence that the property is primarily residential
• Additional documentation regarding land zoning

The ability to build equity and improve borrowing capacity may be affected by the perceived marketability of large land holdings.

Dual Occupancy and Granny Flats

Properties with secondary dwellings can be attractive for those looking to invest in property or generate additional income. However, lenders assess these carefully:

• The secondary dwelling must typically meet council regulations
• Both dwellings should have separate amenities
• Rental income may be considered when calculating home loan repayments
• Some lenders may offer specific home loan packages for dual occupancy properties

Company Title and Stratum Properties

Unlike standard Torrens title properties, company title and certain stratum-titled properties have restrictions:

• Fewer lenders willing to provide finance
• Higher interest rates and deposits required
• Limited home loan features available
• Restrictions on rental use may affect investment loans

If you're considering these property types, understanding current home loan rates and available home loan benefits becomes particularly important.

New Construction and Off-the-Plan Purchases

When purchasing land and building or buying off-the-plan, you'll likely need a construction loan rather than a standard home loan. These products have different characteristics:

• Progressive drawdowns as construction milestones are reached
• Separate land and construction components
• Specific home loan application requirements
• Different interest rate structures during construction

For off-the-plan apartments, obtaining Home Loan pre-approval early is advisable, as property values and lending criteria may change between contract signing and settlement.

Properties Requiring Renovation

Fixer-uppers can be opportunities to secure future and financial stability, but lenders assess them cautiously:

• Major structural issues may result in loan rejection
• Maximum LVR often reduced for properties in poor condition
• Some lenders may require work completion before settlement
• Consider whether additional funds for renovations will affect loan amount approval

Investment Properties

While all property types can be purchased for investment purposes, lenders typically:

• Apply different interest rates compared to owner occupied home loans
• Calculate rental income when assessing borrowing capacity
• Require lower maximum LVR for higher-risk property types
• Offer specialised investment loan products

Understanding how property type intersects with investment lending is crucial for those looking to invest in property.

Special Property Types

Certain properties face additional scrutiny or limited lending options:

• Properties affected by environmental hazards or flooding
• Homes constructed with unconventional materials
• Properties with heritage listings
• Mixed-use properties (residential and commercial)
• Properties in retirement villages or over-55 complexes

For specialised situations, including commercial loans for mixed-use properties, working with experienced mortgage brokers ensures you access Home Loan options from multiple lenders.

Making Property Type Work for You

Understanding how your chosen property type affects your home loan application helps you:

1. Set realistic expectations for loan amount and interest rates
2. Choose properties that align with your financial goals
3. Prepare appropriate documentation for your application
4. Compare rates effectively across suitable lenders
5. Plan for deposits and Lenders Mortgage Insurance if required

Whether you're a first home buyer or an experienced property investor, knowing how lenders view different property types positions you for success.

At Law Home Loans, we understand that property selection is personal and financial. Our Melbourne-based team services clients nation-wide, helping you understand how property type affects your home loan options, whether you're seeking a variable home loan, fixed interest rate home loan, or split loan structure with a mortgage offset facility.

We work to identify lenders whose policies align with your chosen property type, potentially helping you access lower rates or need lower repayments through appropriate loan structuring.

Call one of our team or book an appointment at a time that works for you to discuss how your property choice affects your home loan journey.