Everything You Need to Know About Home Loans and Property Types

When you're ready to take the leap into home ownership, understanding how different property types can impact your home loan options is crucial. As a first home buyer, the type of property you choose doesn't just affect where you'll live – it also influences your home loan interest rate, loan to value ratio (LVR), and the home loan products available to you.

Let's explore how property types can shape your journey to achieve home ownership and secure your financial future.

How Property Type Affects Your Home Loan Application

Lenders view different property types as varying levels of risk, which directly impacts your home loan rates and borrowing capacity. When you apply for a home loan, the property type is one of the key factors lenders consider alongside your income, expenses, and credit history.

For an owner occupied home loan, lenders typically offer more favourable terms compared to investment properties. However, within owner-occupied properties, there are still distinctions that affect your home loan packages and interest rate discounts.

Houses vs Units: What's the Difference for Your Home Loan?

Houses
Standalone houses are generally viewed favourably by lenders because they:
• Tend to hold their value over time, helping you build equity
• Have land value that typically appreciates
• Offer fewer complications during the valuation process
• Usually qualify for standard home loan rates and features

Units and Apartments
While units can be an excellent entry point for first home buyers, lenders may:
• Apply slightly higher interest rates in some cases
• Require a lower loan to value ratio (LVR)
• Conduct more detailed assessments of the building and strata reports
• Consider the unit's location within the building (ground floor vs higher levels)

Townhouses and Villas: The Middle Ground

Townhouses often receive similar treatment to houses in terms of home loan products and home loan benefits. They typically offer:
• Competitive variable rates and fixed rates
• Standard home loan features like offset accounts
• Potential for rate discounts similar to houses
• Good prospects for improving borrowing capacity over time

New vs Established Properties: Loan Considerations

New Properties
Purchasing a newly built home or off-the-plan property comes with specific considerations:
• May qualify for first home buyer grants and stamp duty concessions
• Could involve progress payments during construction
• Might require specialised home loan packages
• Valuation risks if the market changes before settlement

Established Properties
Existing homes typically offer:
• Immediate settlement possibilities
• Clearer valuation processes
• Standard home loan application procedures
• Access to the full range of home loan options from banks and lenders across Australia

Specialty Properties and Home Loan Challenges

Some property types require special consideration and may limit your home loan choices:

Rural Properties
• May have limited lender options
• Could require larger deposits
• Might not qualify for standard variable home loan rates
• Often need specialised valuations

Properties on Large Blocks
• Blocks over 2-5 hectares may be classified as rural
• Could affect your loan amount and available interest rates
• May require environmental assessments

Choosing the Right Home Loan Structure for Your Property

Regardless of property type, you'll need to decide on your loan structure:

Repayment Options
• Principal and interest: Standard option that builds equity over time
• Interest only: Lower initial repayments but no equity building

Interest Rate Types
• Variable rate: Fluctuates with market conditions
• Fixed rate: Locked rate for a set period
• Split rate: Combination of variable and fixed portions

Home Loan Features to Consider
• Offset account or linked offset to reduce interest
• Portable loan options if you plan to move
• Redraw facilities for accessing extra payments

Getting Home Loan Pre-approval for Different Property Types

Securing home loan pre-approval helps you understand:
• Your borrowing capacity for different property types
• Current home loan rates you qualify for
• Whether you'll need Lenders Mortgage Insurance (LMI)
• What deposit you'll need for your chosen property type

Pre-approval also helps when calculating home loan repayments and planning your budget for different property options.

Making Your Decision: Property Type and Loan Strategy

When choosing between property types, consider:
• Your long-term financial goals
• How quickly you want to build equity
• Your comfort with different variable interest rates
• Whether you need lower repayments initially
• Your plans for future property investments

Remember, the right property type depends on your individual circumstances, and the home loan market offers various products to suit different needs. From fixed interest rate home loans to flexible variable options, there's likely a solution that fits your situation.

As mortgage brokers, we can help you compare rates across different lenders and find home loan products that align with both your property choice and financial goals. We'll guide you through the process of finding the lowest rates available for your specific property type and circumstances.

Ready to explore your options and take the next step towards home ownership? Call one of our team or book an appointment at a time that works for you. Let's find the right home loan solution for your property dreams.