What properties do Australian banks accept as security for your home loan? Find out if your residential or rural real estate is acceptable security
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Did you know that your bank doesn’t just accept you as the borrower, they also need to accept your property as security!
We’ll discuss what banks look for and how you can get your home loan approved.
Firstly, meet Maree .
She has done quite well for herself. She has recently saved up for a deposit and is thinking of buying a home for her family.
Maree finally finds a property that she has her heart set on. And she applies for a loan.
A week later she gets a call from the bank. They have declined her loan! Apparently they won’t accept the house as security!
So why won’t the bank accept her property?
Banks are very conservative.
In particular they want to know: Can the property be sold easily? If it can’t then it isn’t good security for a mortgage.
But surely the banks never make a loss?!
Well actually they often do!
If a bank has to take possession of a property then it is a very drawn out process. Nobody wins!
Despite what many people think, banks want to avoid this at all costs.
So why was Maree’s property considered to be difficult to sell?
Maree always had a dream of living in the country. When she finally found the perfect little hobby farm she couldn’t resist it.
As much as Maree loved the hobby farm, the banks weren’t eager to finance the property because it doesn’t appeal to a wider market.
The wider an appeal that a property has the easier it will be to sell.
Banks also want a property to be in an active market and be in a good location.
So a house or unit in a capital city is generally considered to be the best type of security for a home loan.
So what other types of properties are difficult to finance?
Small one-bedroom units that are less than 50m2
Larger properties that are more than 2 hectares.
High rise apartments and inner city apartments.
Properties in remote areas like mining towns.
Specialized properties like serviced apartments, or holiday.
Property with limited appeal that are near power lines or are flood affected.
And Property that is difficult to value, like the best house in the worst street
So how can Maree get a mortgage for her hobby farm?
Firstly, we can apply with a lender that can accept hobby farms. Remember that each bank has their own lending guidelines.
Secondly, we can get valuations from other lenders! Sometimes the first valuation is really conservative and you may have to go elsewhere.
Thirdly, increase the size of your deposit. The smaller your loan is the more likely you are to have the bank accept your property.
So where is Maree today?
Well the Home Loan Experts found a bank that loved her hobby farm as much as she did and today her family has expanded to include 5 chickens, 2 sheep and a cow.