A two bedroom unit in an older Ashfield block and a newly built apartment in Rhodes might have a similar price tag. That does not mean a bank will treat them the same way. Before approving a home loan, lenders look at the apartment as well as the person buying it.
It is an easy detail to miss when you have already been told how much you can borrow. But a lender can be comfortable with your income and deposit and still have concerns about the property you want. If that only becomes clear after you have made an offer, finding another option can be stressful.
A preapproval does not cover every apartment
A home loan preapproval generally focuses on your financial circumstances. The lender considers your income, expenses and existing debts to estimate what you may be able to repay. Once you have found a property, the lender still needs to decide whether that apartment is suitable security for the loan.
Size is one factor. Some lenders have different rules for smaller apartments, studio layouts or properties in large developments. The building’s condition and location can matter too. A property one lender is willing to finance might need a much larger deposit with another.
The valuation can also catch people out. If you agree to pay $900,000 and the lender values the apartment at less than that amount, you may need to contribute more cash. That can be a serious problem for buyers who have carefully saved enough for the deposit and purchase costs but have little left over.
Do not leave the strata records until the last minute
A newly renovated kitchen looks great at an inspection. It tells you very little about the condition of the roof, the lift or the building’s finances. That is why a strata records inspection matters before you commit to buying.
The records can reveal planned repairs, disputes between owners, insurance problems or special levies. A special levy is an extra amount owners may be asked to contribute towards costs the usual strata budget cannot cover. Buyers should have the records reviewed and discuss any concerns with their solicitor or conveyancer. A bank valuation will not pick up everything a proper strata review might uncover.
Running costs also vary. An older block with a few apartments may have very different levies from a tower with lifts, a gym and a pool. Those facilities can be appealing, but the quarterly strata bill needs to fit alongside the home loan repayments.
A five percent deposit is only part of the upfront cost
Eligible first home buyers can purchase through the Australian Government 5% Deposit Scheme without paying lenders mortgage insurance. They still need to meet the participating lender’s credit requirements and have enough money for the other costs of buying.
Take a $900,000 apartment as an example. The five percent deposit is $45,000. An eligible first home buyer purchasing at that price in New South Wales would pay about $19,594 in transfer duty under the First Home Buyers Assistance Scheme. That brings the upfront amount to roughly $64,594 before legal fees, inspections and other costs. The deposit scheme and the transfer duty concession have separate eligibility rules.
And the deposit is not the end of the budgeting. You will also have council rates, strata levies, insurance and ordinary household bills after settlement. A purchase can look affordable on the loan repayments alone and feel much tighter once those costs are included.
Be careful when buying at auction
Preapproval is useful for setting a budget, but it is not a promise that any property you choose will receive final approval. The lender may still need a satisfactory valuation, property checks and updated information about your finances.
This matters even more at auction. In New South Wales, there is no cooling off period when you buy a property at auction. Before bidding, have your solicitor or conveyancer review the contract and ask your lender or broker whether anything about the particular apartment could create a lending problem.
Why one lender’s answer may be different from another’s
Banks do not all assess borrowers and properties in exactly the same way. One may be comfortable with a small apartment while another has stricter conditions. They can also treat overtime earnings, self employment income or an existing investment loan differently. That is why a rate comparison on its own may not answer the more important question of whether the lender will approve the purchase.
Charles Touma is a Sydney mortgage broker who runs Links Property Finance in the Inner West. His brokerage has access to a panel of more than 70 lenders and helps first home buyers and existing homeowners compare their loan options. For buyers considering an apartment, checking the property type against lender policies early can save a lot of back and forth later.
A broker can help narrow down which lenders may suit the buyer and the apartment. Buyers still need independent legal advice and should not skip building or strata inspections simply because a lender is prepared to finance the purchase.
Ask these questions before making an offer
What will you need in cash once transfer duty and other purchase costs are added? Has your lender checked whether the apartment type is acceptable? Have you read the strata report and allowed for quarterly levies? Could you still manage the repayments if interest rates rose?
Finding out that a lender has concerns about an apartment is disappointing. Finding out after contracts are exchanged is much worse. A few checks before you make an offer can give you a clearer idea of what you are actually committing to.
