How to Choose a Home Loan for Different Property Types

Understanding Property Types and Home Loan Options

When you're looking to achieve home ownership, the type of property you're buying plays a significant role in determining which home loan products and home loan features are available to you. Not all properties are treated equally by lenders, and understanding these differences can help you prepare your home loan application more effectively.

Different property types come with varying levels of risk from a lender's perspective, which directly impacts your home loan interest rate, loan to value ratio (LVR), and whether you'll need to pay Lenders Mortgage Insurance (LMI). Let's explore how various property types influence your home loan options and what you need to know before you apply for a home loan.

Standard Residential Properties

Standard houses and units in established suburbs are typically the most straightforward when it comes to securing finance. These properties usually offer access to home loan options from banks and lenders across Australia with favourable terms.

For an owner occupied home loan on a standard residential property, you can generally expect:

• Access to competitive variable rate and fixed rate options
• The ability to choose between principal and interest or interest only repayments
• Home loan features like an offset account or linked offset facility
• Loan to value ratios (LVR) of up to 95% (though 80% helps you avoid LMI)
• Lower interest rate discounts compared to non-standard properties

When calculating home loan repayments on these properties, you'll typically find current home loan rates are more favourable because lenders view them as lower risk. You can also consider a split loan arrangement, combining both variable interest rate and fixed interest rate portions to balance flexibility with rate certainty.

Apartments and Units

While apartments and units fall under residential property, lenders do assess them slightly differently. The size of the apartment, the number of units in the complex, and whether it's serviced or non-serviced all matter.

Smaller apartments (generally under 50 square metres) may face lending restrictions with some lenders refusing to provide finance or offering higher variable home loan rates. Studio apartments can be particularly challenging. Similarly, buildings with more than a certain number of storeys or units might require additional scrutiny.

Properties in Regional and Rural Areas

For residents on the Central Coast and across Australia looking to invest in property outside metropolitan areas, it's worth knowing that location affects your borrowing capacity. Regional properties are generally well-supported by most lenders, but truly rural properties or those in small towns with limited population may face restrictions.

Some lenders won't provide finance for properties in locations with populations under a certain threshold, or they may:

• Reduce the maximum LVR available
• Charge higher interest rates
• Limit the loan amount they're willing to provide
• Restrict certain home loan packages or features

If you're looking at rural land or hobby farms, even fewer lenders will participate, and you'll need specialist advice to compare rates and find suitable home loan products.

Units with Commercial Components

Properties that combine residential and commercial use require special consideration. If you're buying a unit above a shop or a property with a home business component, this impacts your finance options significantly.

These properties often:

• Require a higher deposit (lower LVR)
• Attract higher variable rate and fixed rate interest
• May not qualify for standard owner occupied home loan products
• Might need a commercial loan structure instead

Working with a mortgage broker who can access home loan options from multiple lenders becomes particularly valuable with these property types.

Land and Construction

If you're purchasing vacant land with the intention to build, you'll need specialist construction loans rather than standard home loan products. These loans release funds in stages as the build progresses and often start as interest only during construction before converting to principal and interest.

Construction finance typically requires:

• A lower LVR (usually maximum 80%)
• Detailed building contracts and plans
• A qualified builder
• Progress inspections before each payment

The home loan benefits of building include creating a property tailored to your needs and potentially building equity as construction completes.

Investment Properties

While not a physical property type, it's worth noting that investment loans come with different lending criteria regardless of the property type. Investment properties generally receive slightly higher interest rates (typically 0.20% to 0.60% more) compared to owner occupied home loans.

However, investment properties still offer valuable home loan features including:

• Offset account access to reduce interest
• Interest only repayment options
• The ability to claim interest as a tax deduction
• Portable loan features if you want to sell and purchase another investment

For first home buyers who are considering investing, understanding these differences is crucial for financial stability.

Specialist Property Types

Some property types require specialist lenders or present unique challenges:

• Properties on leasehold land: These have limited lender appetite and often need at least 30 years remaining on the lease
• Properties with dual occupancy: May be treated as investment or commercial
• Properties needing significant renovation: May require construction or renovation loan structures
• Company title units: Very few lenders will consider these, and those that do charge premium rates

Getting the Right Finance for Your Property Type

Understanding how property types affect your home loan application helps you set realistic expectations about loan amounts, rates, and features available to you. While some property types face restrictions, working with knowledgeable professionals who can access multiple lenders increases your chances of securing suitable finance.

Before you commit to purchasing any property, particularly non-standard types, consider getting home loan pre-approval. This confirms your borrowing capacity and ensures the property you're considering will be acceptable to lenders. You might also benefit from a loan health check if you're considering refinancing to a different property type.

CoastFin works with lenders across Australia to help you find the right home loan rates comparison for your specific property type. Whether you need lower repayments, want to build equity, or are looking to secure your future through property ownership, understanding the relationship between property types and finance options is your first step.

Call one of our team or book an appointment at a time that works for you to discuss which home loan products suit your property purchase.