In the dynamic real estate landscape of Sydney, apartments have emerged as a popular choice for prospective homebuyers and investors seeking affordability and convenience. With skyrocketing property prices and limited housing supply, apartments offer a more accessible entry point into the market compared to traditional houses. However, securing a home loan for an apartment purchase in Sydney requires careful consideration and due diligence.
Home Loans for Apartments
Here are some key factors to keep in mind when navigating the home loan process for apartments:
Size Matters
When it comes to apartment financing, size plays a crucial role. Lenders typically have minimum size requirements for apartments eligible for mortgage financing. As a general rule of thumb, the apartment will need to have at least 45 to 50 square metres of living area (excluding balconies, car spaces or storage unit). However, individual lenders may have different sets of criteria so it's essential to ensure that the apartment meets these size criteria for your financial institution to avoid potential loan approval issues.
Some lenders won't lend on studio apartments (those with no separate bedroom), or require a larger deposit.
Location, Location, Location
The location of the apartment can significantly impact its loan eligibility and borrowing capacity. Properties in high-demand areas with strong growth potential may be more attractive to lenders, while those in oversupplied or less desirable suburbs may face stricter lending criteria.
Individual lenders may have their own internal policy that limit their abilty to lend on certain post codes that have a high concentration of apartments or even on specific (high-rise) buildings or developemtns as they aim to minimise their risk exposure. That is, lenders want to minimise having too many eggs in one basket.
Title Considerations
Many apartments in Sydney are governed by strata title arrangements, which are generally widely-accepted by financial institutions. However, some apartments can fall under Company Title, which comes with competely different ownership structure and rules. Generally speaking, lenders are more hesitant to lend to anyone buying a Company Title property. Serviced apartments that are managed as part of a hotel that are strata titled may also raise alarm bells for lenders.
Deposit Requirements
Lenders assess the property value against the loan amount through the loan-to-value ratio (LVR). For small apartments under 40 square metres, borrowing over 80% of the property's value is unlikely, meaning a minimum 20% deposit. For larger apartments, typically, the maximum LVR for borrowing is 90%, but note any LVR over 80% will require Lenders Mortgage Insurance (LMI) which can add thousands of dollars to your purchase depending on your overall loan amount.
Building Quality and Maintenance
Prior to finalising an apartment purchase, it's crucial for potential buyers to perform comprehensive due diligence on the building's quality and maintenance protocols. Factors like building defects, inadequate maintenance, or ongoing strata disputes can significantly impact the property's value and loan approval chances. Warning signs emerge if a building faces challenges in obtaining strata building insurance. Additionally, buyers must anticipate any forthcoming special levies to ensure they have sufficient funds to meet them, as they will be held accountable.
Off-the-Plan Purchases
Buying an apartment off-the-plan can offer potential savings as you are locking in your purchase price now for a product/home that will be delivered down the track. This works well when you have a rising property market but if the market has fallen towards settlement, purchasers will need to fund the price gap as lenders will only lend on a current valuation.
For example, if the apartment was purchased for one million dollars off-the-plan and the purchaser had expected the lender to fund 80% of the purchase price ($800,000). However, at settlement, the apartment was valued at $900,000. The lender will now fund only 80% of $900,000 or $720,000. As a result, the purchaser will need to fund the shortfall of $80,000 using alternate means.
Given the complexities of apartment financing, seeking advice from qualified mortgage brokers or financial advisors specialising in strata property transactions can be invaluable. These professionals can provide tailored guidance, assess your financial situation, and recommend suitable loan products tailored to your needs and circumstances.
Once you've made your apartment purchase, it's crucial to ensure that an effective strata management team is in place to guarantee the seamless operations of your community. With Compass Strata, you can trust that your strata needs are expertly handled, allowing you to enjoy peace of mind in your new home.
