It’s easy to think that the banks only lend money to homes built with traditional materials such as brick, mortar or fibro.
But did you know that a number of lenders would also consider properties made up of unconventional building materials such as mud-brick, straw-bale or even rammed earth?
Unconventional building materials as the banks see it
As far as the banks are concerned, all building materials aside from brick, weatherboard or fibrous cement are unconventional building materials. So properties built using these will be classified as unconventional homes.
Eco-friendly and sustainable materials such as timber, straw-bale and mudbrick are considered unconventional materials.
So a log cabin made with timber will be considered an unconventional home.
Other unconventional homes can include rammed earth construction, dugout homes, salvaged material homes and gypsy wagon houses.
Properties built using unconventional building materials may not look that different from standard properties. Even if there is a visible difference, location plays a big part in terms of the property’s marketability.
Therefore, if you want to maximise your property’s future capital growth and sellability, make sure you build or buy in larger regional centres where there’s demand for such type of property.
This will also help ensure you can get a loan to buy it because the banks take your property’s marketability into consideration when assessing your loan application.
How much can I borrow?
In most cases, you can borrow up to 80% Loan to Value Ratio (LVR) to buy unconventional homes.
If a lender can accept the property as any other established dwelling then you may be able to borrow up to 95% LVR. However, this depends mainly on how marketable the property is.
For example, lenders may be able to lend up to 95% for an unconventional home that’s very close to a standard house and has a wide appeal to most buyers.
Properties with an unusual design or if it has certain problems or limitation are generally harder to sell. If you’re buying or building such a property, most banks will require you to have a large deposit.
We have mortgage brokers with many years of experience in the credit industry. We know which lenders are more flexible with their lending policy and we can help you qualify for a home loan.
You can discuss your situation and loan needs with one of our expert mortgage brokers by calling us on 1300 889 743. You can also fill in our free online assessment form and one of us will contact you instead.
Why are the banks so conservative?
While eco-friendly houses made of mudbrick or straw bale are becoming more popular, from the bank’s point of view, these properties are still harder to sell compared to the bread and butter type homes.
The reason is simple: unconventional homes don’t appeal to every buyer. Such properties can take longer to sell because the market for eco-friendly homes, while growing, is still very limited at moment.
This is why lenders generally lend only up to 80% LVR.
It’s also worth noting that lenders may be more conservative with their lending policy if you’re building rather than simply buying a property made of unconventional building materials.
Another reason why the banks are conservative is that most of these properties are considered higher risk compared to a conventional home.
Lenders usually require that properties with a higher risk rating be approved by higher level credit assessors. Unless you have a strong loan application such as having other property to use as security, a strong income and a low LVR, you may not qualify.
Can I still get a no deposit construction loan?
Unfortunately, there are no longer any lenders in Australia that offer no deposit construction loans.
Please note that most lenders will only allow a guarantee from your parents. If your guarantor is someone other than your parents, you may have to meet additional lending criteria.
With a guarantor home loan, you can avoid the requirement for a deposit as well as genuine savings. You’ll also avoid having to pay Lenders Mortgage Insurance (LMI). Lenders generally charge LMI when you borrow more than 80% LVR.
What are the alternative loan products?
It’s generally easier to secure finance when you’re buying an established property rather than building a property using unconventional building materials. If you don’t qualify for a standard construction loan, you can apply for the following instead:
- Cost plus construction home loan: You can borrow up to 80% LVR with a cost plus construction home loan. Here, large scale renovations of existing properties are also generally accepted. Note that you’ll need to have contingency funds in case you exceed your budget. However, most banks don’t lend to cost plus building contracts.
- Owner builder loan: If you’re a licenced builder, you may be able to borrow up to 95% LVR with an owner builder loan. If not, you’re generally limited to 80% LVR.
Most banks heavily rely on the valuer’s reports when it comes to financing unconventional homes. This is where marketability, zoning, surrounding properties, risk rating and other factors come into play. Some banks assess these properties case by case while others may not accept them.