Can your lender accept your property as security?
Lenders don't automatically accept every property as security for a loan! In fact with low doc loans they are even more conservative with the properties they accept because they believe there is a higher chance that the borrower will run into trouble. Remember they haven't seen your tax returns or any other financials!
The banks look for security properties that can be sold quickly, that can be valued accurately and that aren't likely to fluctuate in value. We've listed a few common types of properties that most lenders don't like for lo doc, lite doc or no financial home loans as well as the expected maximum loan amount that you can borrow.
Inner City Apartment
Low Doc: You can borrow up to 80% of the value of an inner city apartment.
High density units are usually defined by their postcode along with other criteria such as being over three stories tall or having more than 30 units in the complex. Many lenders fear that there is less demand for inner city units, in particular when a complex has just been completed and there remain unsold units in the same building as your unit. The majority of lenders will not lend more than 60% of the value of the property as a low doc loan however some of our lenders can consider up to 80%.
Serviced Apartment
Low Doc: You can borrow up to 70% of the value of a serviced apartment.
Serviced apartments are normal units that are fully furnished and leased to short term tenants. Often they have a management agreement in place whereby the rent from the complex is pooled to distribute between the owners evenly. Management fees can be high and the resale of units may be limited due to restrictions on some units being released from the management agreement.
Company Title
Low Doc: You can borrow up to 80% of the value of company title unit.
Company title properties are usually blocks of units where a company owns the entire building and individuals own shares in the company which gives them the right to occupy one of the units. Company title was the precursor to the modern day strata title and is quite common for blocks of units built prior to the 1970s. Lenders take security over the shares rather than the land itself. Most lenders will not approve low doc loans for company title units because the company has to approve actions of the owners such as selling the property or renting the unit.
Multiple units on one title
Low Doc: You can borrow up to 80% of the value of up to four units on one title.
It is quite common for medium sized investors to consider the higher returns offered by multiple houses, townhouses or units on one title. The rental returns tend to be significantly higher, particularly in regional areas. Other investors build granny flats in their backyard to turn their home into an investment property. Lenders do not like this type of security for low doc loans as there are fewer people willing to buy dual occupancies / multiple buildings on one title. Normally 2, 3 or 4 units on one title are acceptable. Some lenders can consider 5 or 6 units as a residential loan or 7+ units as a commercial low doc loan. Contact us for the full details if you are financing more than 4 units on one title.
Studio apartment / bed-sitter
Low Doc: You can borrow up to 80% of the value of a studio apartment.
Small one bedroom units that are less than 50m2 (not including balconies and car spaces) are considered to be a higher risk by lenders and may not be acceptable as security for a low doc loan. Almost all lenders will not consider units that are less than 40m2. Unfortunately most studio apartments and bed-sitters are between 25m2 and 40m2 in size. There are one or two lenders that can consider properties of this size for a low doc loan.
Hotel / motel unit
Low Doc: You can borrow up to 60% of the value of a hotel apartment or up to 80% of the value of a hotel / motel conversion.
Some hotels such as the Sebel allow people to invest in their hotel by buying a room in their building. The room is used by the hotel and rental income is paid to the investor. These types of properties can only be used as an investment and can only be leased to the hotel. Because of these restrictions the normal maximum loan amount is 60% of the value of the property.
Motel units and hotel units that have been converted into residential strata units do not have these restrictions. If they are of good quality and the bank's valuer believes they are readily saleable then you may be able to borrow up to 80% of the value of the property.
Warehouse conversion
Low Doc: You can borrow up to 80% of the value of a residential unit in a converted warehouse.
In recent years developers across Australia have been converting old warehouses into stylish inner city apartments. Lenders may restrict the amount you can borrow because these properties tend to appeal to a smaller market. For good quality properties with a broad appeal you may be able to borrow up to 80% LVR (80% of the value of the property).
Heritage listed
Low Doc: You can borrow up to 80% of the value of a heritage listed house.
Properties that are considered to be of historic importance or that were built with a design that is of importance to Australia's cultural heritage may be listed on either a state or federal heritage protection list.
The property must be maintained in a good condition and restrictions are placed upon the types of changes that can be made to the external appearance and style of the property. Many people believe that being heritage listed increases the value of a property.
Lenders see these properties as a higher risk because they do not always appeal to everyone looking to buy a house. Heritage properties can also be difficult to value due to a lack of similar properties to compare them to.
2nd Mortgage
Low Doc / No Doc: You can borrow up to 85% of the value of a standard residential property.
Prime lenders such as the major banks and major non-banks will not approve low doc loans as a 2nd mortgage. In some cases they may be able to do so as an exception to policy if they hold the first mortgage as well. However as a general rule 2nd mortgages can only be used as security for no doc loans by private funders.
Landslip prone area
Low Doc: You can borrow up to 80% of the value of a landslip prone area.
If your property is in a landslip area then please contact us to discuss your options. Each application is assessed on its merits so we will usually discuss your loan with several lenders so you can get the best possible outcome. Some properties are completely unacceptable with no lender willing to accept them as security.
Flood affected
Low Doc: You can borrow up to 80% of the value of a house in a flood prone area.
Real estate that is in a 1 in 100 year flood zone (1/100 Residential) are considered to be the maximum risk most lenders will consider. Properties that are known to flood more regularly are unlikely to be considered as security for a low doc loan. Houses where the known flood height is higher than the height of the floor can be considered on a case by case basis.
Mine subsistence
Low Doc: You can borrow up to 80% of the value of a property that is in a mine subsistence district.
Land that is above an area that was mined may be at risk of collapsing, has restricted zoning and is considered to be a higher risk by most lenders. By providing evidence from the mine subsistence board we may be able to assist you use your property as security for a low doc loan.
High value luxury property
Low Doc: You can borrow up to 60% of the value of a luxury residential property worth in excess of $3,000,000.
Exclusive properties in upper class suburbs that have values in excess of $3 million tend to fluctuate in value and may even reduce in value as a flow on effect of share market crashes. Because of this, lenders tend to limit the maximum loan amount to 60% of the property value. Non-bank and private lenders may consider higher loan amounts on a case by case basis.
Island properties
Low Doc: You can borrow up to 80% of the value of a property on an island.
Lenders restrict low doc loans that are secured by properties located on an island that is not connected to the mainland by a bridge. This is because there is less demand for this type of property which can prolong the resale of the property. Land and houses in Tasmania or on Russell Island, Lamb Island and Macleay Island which are all located in Redland Bay QLD can be financed up to 80% of the property value with a low doc loan. Properties on other islands are assessed on a case by case basis.
Retirement units / over 50's villages
Low Doc: You can borrow up to 70% of the value of a retirement unit.
Torrens, Strata or Community title retirement units are acceptable with a handful of lenders up to 60% or 70% of the property value using a low doc loan. Leasehold retirement units often known as manufactured home parks are unacceptable security for all lenders. You may be able to finance them if you have a guarantor or other properties that you are willing to use as security for your loan.
Properties in bad condition
Low Doc: You can borrow up to 80% of the value of a property in a bad condition.
Ask yourself if you could rent the property out in its current condition. If the answer is no then chances are most lenders will not approve a low doc loan using that property as security. Renovator's dreams can turn into nightmares when a contract of sale has been signed and then the bank turns around and declines the loan because of the condition that the property is in! It is critical that you do not commit to buy until we have an approval from your bank.
Lenders often ask their valuers to assess how easily a property could be sold. If the property is in a high demand location then even a condemned property that would have to be knocked down may be acceptable to some lenders. In rural locations with limited demand, dilapidated properties in a poor condition are usually unacceptable.
Holiday rental
Low Doc: You can borrow up to 80% of the value of a holiday rental house or unit.
Lenders view holiday rentals to be a higher risk due to the fluctuating nature of the rental income and the higher management fees from agents. Often properties in holiday locations are hard to sell during the off season as fewer tourists are in town looking to buy a weekender.
The amount that you can borrow and which lender we choose will depend on the type of property, if it is specialised in any way and the postcode it is in. Contact us to find out how much you can borrow for your holiday rental / weekender.
Vacant Land
Low Doc: You can borrow up to 80% of the value of vacant land.
Vacant land is residential, rural residential or rural zoned land with access from an all weather road. Blocks of land that cannot be connected to the power grid or that cannot get sewer, septic, town water or tank water connected are generally not acceptable for low doc loans. If the land is over 2 hectares then some lenders will not be able to help. If the land is over 50 ha there are very few lenders that can approve the loan. Some banks will put a condition on your loan that you must commence construction within 2 years, while others don't care if you don't intend to build.
What types of properties are considered to be ideal security?
Properties such as a house, villa, unit, townhouse, duplex, semi-detached house, terrace, vacant land (some restrictions) or house to be erected (some restrictions) that is either strata title, torrens title, community title or Crown land / ACT leasehold (not other types of leasehold) are considered to be prime security. The majority of lenders will be able to approve your loan, contact us to find the lender with the cheapest loan for your situation.
What are the Low Doc Loan Interest Rates for specialised security properties?
Often we can convince a prime lender to do your low doc loan at a standard or discounted interest rate. It is only in rare circumstances that you will have to pay a higher rate then someone who is using a standard house as security. You can see the best rates in our Low Doc Interest Rates section.
How do I apply for a Low Doc Loan?
We are specialists in Low Doc Finance and can help you find the right lender. Just go to our Apply for a Low Doc Loan section and send us your details along with any comments about the type of property you would like to use as security and if you have been declined by any lenders already. We'll be in touch shortly with a few competitive quotes!
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