Studio apartment too small for a mortgage, why?

Any general questions you might have in regards to loans and finance.
Marshall P
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Joined: Thu May 09, 2019 2:44 pm

Studio apartment too small for a mortgage, why?

Postby Marshall P » Thu May 09, 2019 2:45 pm

Hi, I’m really keen on purchasing a studio apartment in Rushcutters Bay, Sydney valued at $300,000. I planned to put down the $30,000 earnest money deposit on the house next week but I’ve been told by my bank that the property is not acceptable as it is too small or something. I don’t understand why though, it’s located in a prime location. What’s the deal here? Studio apartment too small for a mortgage, why?

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Otto Dargan
Mortgage Specialist
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Re: Studio apartment too small for a mortgage, why?

Postby Otto Dargan » Thu May 09, 2019 3:07 pm

Hello Marshall. Welcome to the forums.

Studio apartments under 50 square meters (50m2) are considered unusual securities by lenders as they believe that there are less potential buyers that would be interested in such a property, as such it may take longer to sell compared to an ordinary unit.

Each lender has their own guidelines as to the minimum unit size they’ll accept. Typically lenders won’t accept units with an internal living space smaller than 50 m2 not counting the balcony and car space.

The unit size determines how much you can borrow:
  • Less than 18m2: There are no lenders who accept security smaller than 18m2.
  • 18m2 to 40m2: You can borrow up to 80% of the property value.
  • 40m2 to 50m2: You can borrow up to 90% of the property value.
  • More than 50m2: You can borrow up to 95% of the property value.


Give us a call on 1300 889 743 or fill in our free assessment form to find out if you qualify for a studio apartment home loan.

Cheers,
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

Paul L
Posts: 4
Joined: Thu May 09, 2019 2:38 pm

Re: Studio apartment too small for a mortgage, why?

Postby Paul L » Thu May 09, 2019 3:56 pm

I’m willing to put up an additional $60,000 to bring the LVR to 70% so that’s not an issue. I’m paying off a $20,000 car loan and my 120k HECs debt, I’m concerned that the servicing may be tight without considering my bonus income. I’ve been with the same firm and receive an average 30k approx. as bonus income every year. Are there lenders that will accept my bonus income?

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Otto Dargan
Mortgage Specialist
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Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
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Re: Studio apartment too small for a mortgage, why?

Postby Otto Dargan » Thu May 09, 2019 5:14 pm

Hi Marshall,

We have lenders that do consider 100% of your bonus income if you can provide evidence of receipt on a regular basis.

Most lenders use the lower of the last two years figure for bonus income from your group certificate. While some lenders only require two current consecutive payslips showing the additional income.

You may need to provide a letter from your employer confirming the consistency of this additional income.

Cheers,
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

Erik
Posts: 1
Joined: Thu May 09, 2019 5:52 pm

Re: Studio apartment too small for a mortgage, why?

Postby Erik » Thu May 09, 2019 5:53 pm

Hi there, I’m looking at entering into a contract to purchase an off the plan unit with a proposed living floor space of 44 square meters. The construction is likely to finish by July next year. When is the best time to apply for a formal approval?

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Otto Dargan
Mortgage Specialist
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Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
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Re: Studio apartment too small for a mortgage, why?

Postby Otto Dargan » Thu May 09, 2019 6:45 pm

Hi Eric, welcome to the forum.

Generally, when buying off the plan you want to have an indicative approval at the time you sign the contract, but it's useless unless your situation remains relatively unchanged by the time settlement comes around. Buying off the plan has its inherent risks.

Your pre-approval will expire after 3 months therefore, you’ll want to wait till the building is close to completion or it’s less than 3 months until settlement, then you can apply for formal approval.

We can provide you with an informal assessment so you have a good idea if you will qualify for an off the plan purchase.

Give us a call on 1300 889 743 or fill in our free assessment form and one of our mortgage brokers will help you get approved.

Cheers,
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts


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