Buying a property below market value essentially means that you’re acquiring the property for a low price.

Favourable purchases are ideal for people who don’t have a large deposit. Discover how you can qualify for a home loan.

How much can you borrow?

Some of our lenders have excellent policies that allow you to maximise the amount you can borrow when buying a property below market value.

  • If you have 5% in genuine savings: You can borrow up to 95% of the property value as long as you don’t borrow more than 105% of the purchase price.
  • If you don’t have any savings: You can borrow up to 90% of the property value as long as you don’t borrow more than 105% of the purchase price.
  • Guarantor mortgage: Borrow up to 105% of the property value.
  • Low doc: 60% of the property value (80% is available in some circumstances) as long as you don’t borrow more than 100% of the purchase price.
  • Discounts: Competitive professional package and basic loan discounts are available.

Note: Most lenders are very restrictive in the way they assess home loans for buying a property below market value. Some will lend no more than 80% of the property value while others will use the lesser of the purchase price or valuation in their assessment.

Please call us on 1300 889 743 or enquire online to find out how much you can borrow.


What’s a favourable sale?

If you’re buying a property below market value then this is known by the banks as a “favourable sale”.

A favourable purchase or sale comes in two forms:

  • Parents selling a property to their adult child: If your parents have several investment properties then they may decide to help you get a head start in life by selling you a property below its market value.
  • Buying a property to recover a debt: If someone owes you a significant sum of money then you may reach an agreement where they sell a property they own to you for less than it’s actually worth instead of repaying the debt. This is a common way for people to settle debts in the construction industry.

The banks have special home loan lending policies for buying a property below market value. For example, there may be plenty of “gifted equity” in the property but banks are often hesitant to grant approval for the mortgage.


Do I need a deposit?

The majority of banks will require you to have 5% in genuine savings no matter how much the property value has been discounted.

Despite this, buying a property below market value will accepted by some banks with no savings whatsoever.


The LVR calculation is different

The Loan to Value Ratio (LVR) is the home loan amount divided by the lesser of the purchase price or valuation.

Banks use the LVR to calculate the risk of your mortgage and to work out the maximum amount you can borrow.

With a favourable purchase, the banks with the most progressive lending policies will calculate the LVR using their bank valuation only – they won’t take the purchase price into account.


Why are the banks so conservative?

Australian banks are very wary when it comes to buying a property below market value. The reason is that these favourable purchase arrangements are often made without the intervention of an agent, known as an ‘off the market transaction’.

Banks know that if there’s no real estate agent listed on the contract of sale then there’s a higher risk of fraud and if their valuer makes a mistake then they could make a significant loss.

How do the banks protect themselves?

Because of the nature of buying a property below market value, banks will always order a valuation to confirm the property value and investigate the details of the favourable purchase to ensure that they’re comfortable with the transaction.

Some lenders mortgage insurers used by the banks have policies that make it near impossible for you to borrow over 80% of the property value.

Thankfully, not all lenders and LMI providers have these policies.

If you need help getting your loan approved then please enquire online or call one of our mortgage brokers on 1300 889 743 to discuss your situation.


How much stamp duty will I pay?

The exact method that’s used to calculate stamp duty depends on the state you’re in.

In most states, you’ll be required to arrange a stamp duty valuation from a licensed valuer. You’ll then pay stamp duty based on the valuation, not on the agreed purchase price.

In other words, don’t expect to get away with paying less stamp duty – it’s only the purchase price that has been discounted!


An example purchase

George wants to sell his investment property valued at $500,000 to his son Richard. Instead of selling it at market value, George decides to help Richard by selling it to him for only $400,000.

Richard has no savings so, in most cases, a lender would be unable to give him a home loan.

However, one of our lenders can approve Richard for a loan of up to $420,000 (105% of the purchase price) because he’s not borrowing more than 90% of the market value of the property ($450,000).

Because Richard is borrowing over 80% of the property value, he’d need to pay Lenders Mortgage Insurance.


Buying under market value

When you’re considering buying a property below market and it’s not from your parents, it’s important to do some research before you purchase.

Some sellers need a quick sale for genuine reasons while others may be selling the property where there have been problems with the house.

The most common type of property that has no problems with it, yet is sold below market value, is when a bank is foreclosing on a property.

It’s also advisable to further negotiate. Generally, the seller will be more flexible, especially where a quick sale is imperative.

If you’re looking to buy a property below market value and need a home loan, please call us on 1300 889 743 or enquire online and one of our mortgage brokers can help you to finance your purchase.


Apply for a home loan

We’re the experts in home loans for buying a property below market value!

  • We know which lenders will allow you to borrow 100% of the purchase price.
  • As most of our brokers have worked for the major banks, we understand how they think.
  • Our mortgage brokers can help you formulate your loan application to ensure approval.
  • We offer nationwide service.

Did you know some of our lenders offer purchase cash backs for property buyers?

Please enquire online or call 1300 889 743 and one of our mortgage brokers can provide you with several competitive options to choose from.

Why use us?

We aim to set an example by delivering what we promise: a higher level of service, better advice and better home loans.

pin_drop

Australia-wide services

We finance properties anywhere in Australia for people anywhere in the world.

monetization_on

Get incredible interest rates

Our relationships with our panel of lenders allow us to negotiate your interest rate.

thumb_up

We get tough loans approved

We can help you navigate the often complex pre-approval and application process.

favorite

Our customers love us

We receive hundreds of love letters from our customers.

Discover more reasons to use Home Loan Experts

How we find you the right solution

We get a complete understanding of where you’re at and what your ultimate goals are.
You’ll get a recommendation in just a few simple steps.

enquiry form icon
1

Complete our free assessment form or call us.

lender search icon
2

We assess your situation.

panel of lenders icon
3

We look at all the options from our panel of lenders.

recommended deal icon
4

We will find you the most suitable home loan deals.

Testimonials for Home loan experts

4.7

from 300+ reviews

4.8

from 250+ reviews

4.8

from 600+ reviews

Facts
about us

50+

lenders on
our panel

$4B+

lent Australia-wide
and counting

Westpac Logo
ANZ Logo
NAB Logo
AMP Logo
Adelaide Bank
Firstmac Logo
CommonwealthBank Logo
St.george Logo
ING logo
Homeloans Logo
Macquare bank logo
Suncorp logo
pepper money logo
mebank logo
bankwest logo
75%

of our borrowers get
approved with a major bank

95%

of our borrowers get a discount
below the bank standard variable rate