DHA Home Loan
Looking for a great investment opportunity? Defence Housing Australia (DHA) properties have become popular with investors who want guaranteed rental income and no tenanting obligations.
However, securing a loan to purchase a defence property can be difficult. Not all banks will take your rental income into account!
Luckily, we know which lenders have flexible policies and can approve your mortgage.
How much can I borrow?
Banks will generally look at your asset position, credit history, income and employment status when determining how much you can borrow.
- Borrowing 95% of the property value: investors purchasing a DHA property can apply for a home loan for up to 95% of the property value. You can also borrow additional funds to pay for Lenders Mortgage Insurance (LMI) to a maximum of 97% of the purchase price.
- 90% no LMI: Waived LMI available with some of our lenders when borrowing up to 90% and buying a DHA property as an investment.
- Borrowing 100% of the property value: WIth a guarantor, you can borrow up to 100% of the property value plus the costs of completing the purchase.
- 100% of your rental income less management fees: we know banks that can include 100% of rent less any management fees (normally 16.5%). This means that some banks can accept 83.5% of your rent.
Not every lender can help! Investors typically call us after having spoken to several banks, only to find out that DHA properties are not an acceptable security type.
Please enquire online or contact us on 1300 889 743 to speak to one of our mortgage brokers.
Purchasing Defence Housing Australia property
If you are an investor who wants to purchase a DHA property, there are generally two options available to you:
- Buying a property subject to a DHA lease: from an investor who owns a property subject to a DHA lease agreement.
- Buying a property from DHA: the property will be sold by DHA subject to a lease back agreement.
What are the DHA requirements?
If you are buying property off DHA you will be required to provide evidence of your ability to finance the purchase. This may include a home loan pre-approval letter or proof of your cash, assets or superannuation assets.
It is also recommended that you speak to a consultant at Defence Housing Australia who can help you select a property that will meet your investment goals and you can reasonably afford.
Please note that DHA does not allow inspections of the property until the holding deposit has been paid.
How long is a DHA lease?
DHA properties are generally subject to long leasing arrangements of 9 or 12 years. Shorter leases of 3 or 6 years can be negotiated with DHA in some circumstances.
In New South Wales, leases over 3 years are to be registered on the title, however this requirement varies from state to state.
Why don't some lenders like DHA properties?
Despite the guaranteed rental income, banks are reluctant to lend to those buying defence force homes.
Lenders like to ensure that the property is in vacant possession when being sold and that all tenanting arrangements have been terminated.
However, because of the long term leasing arrangement, the property can only be sold to investors, not people who wish to live in the home.
There are also many restrictions on the way the property can be advertised for sale, which means the property may take longer to sell.
This reduces the property’s marketability, making it harder to get finance for a DHA property.
Is it risky to buy a property with a long term lease?
Being locked into a leasing arrangement can be great for investors looking for rental income security.
Your rental income will be secure for an extended period of time and your investment will be protected from fluctuations in the market.
This means that you get more capital growth on your property.
However, if your circumstances or financial goals change or you move away, a long term lease may not be ideal.
You may also be limited in how you can deal with the property and re-selling it can be difficult.
Bear in mind that leases on DHA properties run from 9-15 years rather 3-9 years.
Do you have to sell through DHA?
If you wish to sell the property during the term of the lease, you can do so through a real estate agent, however it must be sold subject to the lease.
Defence Housing Australia requires that you provide them with written notice of your intention to sell.
There are also various restrictions on the way the property can be advertised and inspected, so it is best to contact Defence Housing Australia if you are thinking of selling your DHA property.
Benefits of DHA properties
Owning a conventional investment property can present many challenges and costs.
With a DHA property, most of these obligations are removed.
The advantages include:
- Rental guarantee: There is a government-backed rental guarantee by the Department of Defence and paid every month in advance, regardless of whether there are tenants in occupation.
- Tentant guarantee: The DHA will ensure that there is always tenants in your property and that they are of good quality and will keep the place in good condition.
- Restoration provisions in the lease: The property will be maintained, repaired and restored to its original condition at the end of the lease, including all fixtures removed.
- DHA property care services: This includes extensive property inspections, emergency repair services and general maintenance.
- Long lease terms: 3, 6, 9 or 12 years with further options to renew.
- Annual rent review: rent is reviewed on a yearly basis by independent valuers.
- The property is managed by experts: Every DHA property is managed by a person who has experience in property management with annual reviews undertaken by external valuers on 31 December.
- Flexibility with leasing arrangements: the lease can be extended for up to 36 months or reduced by up to 12 months, upon negotiation.
How much will I pay in management fees?
Property management fees for Defence Housing Australia homes are currently set at a rate of 16.5% of the annual rent (including G.S.T) for houses, and 12 – 14% for townhouses and units.
The fees set by DHA are much higher than those charged by standard real estate agencies, which are generally around 5 – 7.5%.
The higher rate is largely a result of the standard of property management, the guaranteed rental return (even if there are no tenants in occupation) and the frequency of maintenance and repairs.
Why wouldn't I just buy a standard property?
The guaranteed rent alone means DHA properties are really aimed at conservative investors or people new to the game.
Apart from the rental guarantee, the other golden benefit of DHA properties is the ongoing management of the property.
You just don’t get this level of management with a standard property through a real estate agent without paying substantial fees.
This is great for people who don’t have the time to look after an investment property.
It’s common for DHA investors to not even be aware that their property has gone up in value unless they’re notified by the DHA.
So if you’re one of the following professions, a DHA property may be a good option for you:
The great news is that you may qualify for waived LMI and significantly discounted interest rates just because of your professional status.
Are there other drawbacks?
This is largely an urban myth perpetuated by some investors.
The fact is that when selling properties, DHA selling agents are required to get an independent valuation of the property.
If the valuation comes back strong and they can sell the property to recoup their costs, they will.
If the valuation comes in short, the DHA will typically put the property back into their investment portfolio and hold onto it until market conditions improve.
Rent and capital growth isn’t as strong
The reality of DHA properties is that they don’t reap the benefits of highly-speculative investing.
Properties are instead sold at market value.
However, you should consider the fact that you’re buying a property at a lower price, saving potentially tens of thousands of dollars in upfront costs.
Apply for a home loan!
The first step towards purchasing a DHA investment property is getting finance.
Find out how we can help you get mortgage approval with a lender that offers great rates and an attractive loan package.
Speak to us on 1300 889 743 or enquire online and one of our mortgage brokers will contact you to discuss your situation.