Apartment vs House Financing: What You Need to Know

When you're looking to achieve home ownership in Western Australia, one of the key decisions you'll face is choosing between an apartment and a house. While lifestyle preferences often drive this choice, what many buyers don't realise is that financing these two property types can be quite different.

Understanding these differences before you apply for a home loan can help you plan better, avoid surprises during your home loan application, and potentially save thousands of dollars over the life of your loan.

How Lenders View Apartments Differently

Banks and lenders across Australia assess apartments and houses using different criteria. This comes down to risk assessment and how each property type holds its value over time.

For apartments, lenders typically consider:

• Building size (buildings with more than 50 apartments may face stricter lending criteria)
• Strata title versus company title arrangements
• Apartment size (studios and one-bedroom units may be harder to finance)
• The building's overall condition and maintenance
• Whether the property is in a mixed-use development (commercial and residential combined)

Houses, on the other hand, generally receive more favourable treatment because they include land, which tends to appreciate over time. Lenders see houses as lower risk, which can translate to more flexible home loan products and potentially lower rates.

The Loan to Value Ratio (LVR) Factor

One of the most significant differences between apartment and house financing is the loan to value ratio (LVR) that lenders are willing to offer.

For houses, many lenders will provide loans up to 95% LVR, meaning you only need a 5% deposit (plus costs). However, you'll likely need to pay Lenders Mortgage Insurance (LMI) if your deposit is less than 20%.

For apartments, lenders may cap their lending at 90% or even 80% LVR, particularly for:

• Smaller apartments (under 50 square metres)
• High-rise buildings
• Properties in areas with high apartment density
• Buildings with specific construction types

This means you might need a larger deposit for an apartment, which affects your ability to improve borrowing capacity and enter the property market sooner.

Interest Rates and Home Loan Options

While current home loan rates are determined by numerous factors, the property type can influence what's available to you.

For houses, you'll typically have access to:

• The full range of variable rate, fixed rate, and split rate options
• Competitive interest rate discounts
• Various home loan features like offset account benefits
• Both principal and interest and interest only repayments
• Portable loan options if you plan to move properties

For apartments, some lenders may:

• Offer slightly higher variable interest rate or fixed interest rate options
• Limit access to certain home loan packages
• Restrict interest only loans
• Provide fewer rate discount options

That said, when you access home loan options from banks and lenders across Australia through a mortgage broker, you can compare rates effectively and find suitable home loan products regardless of property type.

Building Features That Impact Your Application

Certain apartment characteristics can significantly affect your home loan application:

Size matters: Apartments smaller than 50 square metres are harder to finance. Some lenders won't touch them at all, while others will lend but with conservative LVRs.

Building age and condition: Older buildings or those requiring significant repairs may face stricter lending criteria. The building's strata report becomes crucial in your application.

Commercial mix: If your apartment is in a building with substantial commercial space (like shops or offices on lower levels), lenders may view it as higher risk.

Short-term rental restrictions: Buildings dominated by Airbnb-style rentals or serviced apartments may face lending restrictions, even for owner occupied home loan applications.

Home Loan Features and Benefits

Regardless of whether you're buying an apartment or house, certain home loan features can help you build equity faster and secure your financial stability:

Offset accounts: A linked offset or mortgage offset account can reduce the interest you pay by offsetting your savings against your loan amount. This feature is available for both property types.

Split loan options: Consider a split loan structure combining a fixed interest rate home loan portion for stability with a variable portion for flexibility and the benefits of an offset account.

Home Loan pre-approval: Getting pre-approval helps you understand your borrowing capacity before you start property hunting, whether you're looking at apartments or houses.

First Home Buyers and Investment Considerations

If you're pursuing your first home loan, apartments often provide a more affordable entry point into the property market. However, the financing differences mean you need to plan carefully.

For those looking to invest in property, the decision between apartments and houses involves additional considerations around rental yields, capital growth, and how the property fits within your investment strategy. Our team can help you explore investment loans tailored to your goals.

Getting the Right Finance Structure

Whether you choose an apartment or house, the right loan structure matters. Consider:

• Whether principal and interest or interest only repayments suit your situation
• If you need lower repayments initially or want to build equity faster
• How home loan features like redraw facilities or offset accounts align with your financial plans
• Whether a variable, fixed, or split rate structure provides the stability and flexibility you need

Calculating home loan repayments for different scenarios helps you understand the long-term financial commitment and plan accordingly.

Working with Shoreside Finance

At Shoreside Finance, we understand the nuances of financing both apartments and houses across Western Australia. We can help you:

• Access home loan options that suit your chosen property type
• Compare home loan rates from multiple lenders to find competitive options
• Understand how different home loan benefits apply to your situation
• Structure your loan to support your long-term financial goals
• Navigate the additional requirements for apartment financing

Whether you're in Scarborough, Hillarys, Cottesloe, or anywhere else in WA, we're here to help.

If you're considering an apartment or house purchase, or wondering how your current situation compares to what's available, book a loan health check with us. We'll review your circumstances and identify opportunities to improve your position.

Don't let the differences between apartment and house financing catch you off guard. Call one of our team or book an appointment at a time that works for you. We'll help you understand your options and find the right home loan solution for your property goals.