Why should plumbers consider apartment vs house financing?

When you're ready to make the leap from renting to buying a home, one of the first decisions you'll face is whether to purchase an apartment or a house. As a plumber, your financial situation and work requirements might influence this choice more than you think. Let's break down the key differences between apartment and house financing to help you make an informed decision.

Understanding the Basics of Property Financing

Before diving into the specifics, it's worth understanding that lenders view apartments and houses differently when assessing your Home Loan application. This difference can affect everything from your borrowing capacity to the interest rate you'll pay.

Both property types require you to go through the same application process - providing bank statements, proof of income, and other financial documents. However, lenders often have different criteria for each property type.

Loan Amount and Deposit Requirements

Generally speaking, apartments typically require smaller loan amounts due to their lower purchase prices compared to houses. This can work in your favour as a tradesperson, especially if you're looking to enter the property market sooner rather than later.

For houses, you might find yourself needing a larger deposit to avoid lenders mortgage insurance (LMI). However, apartments often come with their own challenges regarding LMI, particularly if the building has a high percentage of investor-owned units.

Here are the key deposit considerations:

• Houses: Usually require 20% deposit to avoid LMI
• Apartments: May need higher deposits in certain buildings
• Both: Can access Home Loan options with lower deposits, but LMI will apply

Loan to Value Ratio (LVR) Considerations

Your loan to value ratio plays a crucial role regardless of property type. However, some lenders cap their LVR for apartments at 90% instead of the usual 95% available for houses. This means you might need a larger deposit when buying an apartment through certain lenders.

The good news is that mortgage brokers can access Home Loan options from banks and lenders across Australia, helping you find lenders who offer more favourable LVR terms for apartments.

Interest Rate Differences

One area where you might notice variations is in the interest rate offered for apartments versus houses. Some lenders apply slightly higher rates for apartments, particularly in buildings with fewer than six units or those with commercial space.

When comparing your options, consider:

• Variable interest rate products for flexibility
• Fixed interest rate home loan options for payment certainty
• Interest rate discounts that might apply to your profession
• Variable home loan rates that can benefit from market decreases

Calculating home loan repayments for both scenarios will help you understand the long-term financial commitment for each property type.

Stamp Duty and Additional Costs

Stamp duty calculations differ between states, but the property value significantly impacts the amount you'll pay. Since apartments are generally less expensive, you might pay less stamp duty. However, apartments often come with ongoing strata fees that houses don't have.

For houses, you'll need to budget for:
• Council rates
• Water rates
• Maintenance and repairs
• Insurance

For apartments, consider:
• Strata fees
• Special levies for building maintenance
• Potentially higher insurance costs

Pre-approval and the Application Process

Regardless of whether you choose an apartment or house, getting pre-approved gives you a clear understanding of your borrowing capacity. The Home Loan pre-approval process remains largely the same, though lenders might request additional information about apartment buildings, such as strata reports.

A streamlined application process can help you move quickly in the property market, whether you're bidding on a house or apartment.

Building Equity and Future Considerations

Both apartments and houses can help you build home equity over time. However, houses typically offer more potential for capital growth, while apartments might provide better rental yields if you decide to become an investor later.

Consider setting up an offset account regardless of your choice. This can help reduce the interest you pay on your home loan interest rate while providing flexibility for future expenses or business investments.

Making Your Decision

Your choice between apartment and house financing should align with your current financial situation, future goals, and lifestyle preferences. As a plumber, consider factors like:

• Storage space for tools and equipment
• Parking requirements for work vehicles
• Potential for home-based administrative work
• Long-term family plans

Whether you opt for a variable interest rate or fixed interest rate, both apartments and houses can provide a solid foundation for building wealth through property ownership.

Remember, when applying for a home loan, having professional guidance can help you access better Home Loan Rates and terms regardless of your property choice.

Call one of our team or book an appointment at a time that works for you to discuss your apartment or house financing options and find the right loan structure for your needs.