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Owner Occupier vs Investment Property

By Simon Cooper
March 7, 2022

When deciding to buy a home it’s not just a question of whether you should or shouldn’t. Property investment requires more than just a yes or a no, it also poses questions like how and why.

The intentions behind buying a property dictates the classification of a home whether it is an owner-occupied home or an investment property. When you’re buying a home or apartment you intend to live in, it’s called an owner-occupied property. If you plan to rent, it’s considered an investment. As it is hinted in the name, the difference between owner-occupied residences and investment properties comes down to what you intend to do with them.

Take a look at the various differences between the two to help you identify what to consider when you’re applying for home loans to help you buy a house:

  • Requirements – Several lenders have changed the maximum loan-to-value ratio, or LVR, available to investors requiring a more demanding examination of the investors’ income and expenses.
  • Rates – Investment loans are usually the more expensive of the two, having higher closing and ongoing fees, compared to the past wherein lenders tended to treat both classes of borrowers as equal risk.
  • Repayments – Interest-only repayments can put borrowers in a risky situation that is why lenders usually offer interest-only do so for a predetermined period of time, usually up to five years.
  • Taxation Laws – The ATO treats investment property home loans than owner-occupier home loans. For tax purposes, the interest on an investment property home loan is seen as a business expense since investors are using their property as an income-producing asset. Therefore, all interest payments can be deducted from the property owner’s income at tax time. Interest for an owner-occupier home loan is not deductible.

It’s very important to know what your intentions are for buying a property when applying for a home loan. You must not overlook one condition over another simply because you are able to meet that particular requirement. All of it should be deliberately taken into account before finally making a decision of which type of loan to get.

How To Get A Loan To Buy A House

When you apply for a home loan to buy a house, lenders must evaluate the information you have provided. Information such as the value of the asset, your income and liabilities such as existing debt will be assessed as well as other considerations, including credit history, for the amount you plan to borrow and the type of loan you’re looking to secure.

Before deciding on a particular type of loan, it is crucial to evaluate your options and compare rates with multiple lenders. Additionally, you must weigh the financial impact of various interest rates, terms and payment plans so you can go with the option that is suited to your economic situation and goals.

After you submit your application for a mortgage, the lender will contact you to discuss your eligibility, options and other information you need to provide. For instance, you may be required to submit financial statements from the last few years, pay slips, tax documents, proof of sale of your property and documentation for your current assets and liabilities.

How To Get A Home Loan For An Investment Property

The requirements can be a bit more austere for investor home loans, especially now that numerous banks and lenders have raised the bar on their stress tests and other criteria for non-owner-occupied properties. You will need to demonstrate that you have a considerable amount of money set aside to manage the mortgage with the required value of the funds set aside higher than if it’s your first home loan. This will be evaluated in terms of a certain number of months of mortgage repayments for each property.

The amount you are likely to receive in rental income can also be a consideration for investment loans, since it might be able to cover the cost of your mortgage repayments and other expenses with this income. The investment might not actually lower your debt-to-income ratio, which is one of the factors in the loan approval process. Lenders also take into consideration the potential appreciation of your property over the course of the home loan.

What Experts Think

Deciding what type of loan to get is hard because of all the requirements you have to consider. However, the challenge does not stop as soon as you get to decide, rather it opens many more doors of endless decisions to make.

At Forward360, we have a team of highly professional financial advisors to help you make sound decisions in your financial planning journey. Our team will not only help you manage your investment portfolio, but will also educate you on how it works. Learn with us, contact our support team today.

Simon Cooper

Co-Founder, Managing Director, Financial Adviser

Simon is a financial advisor who takes his work seriously. He ensures that all of his clients receive the best possible advice, so that they can reach and exceed their financial goals, both personally and professionally. Simon has been in the business for many years, and has a wealth of experience to share with his clients. He is known for being friendly and approachable, and always puts the needs of his clients first. Simon Cooper is an Authorised Representative of Reedy Capital Pty Ltd (AFSL No. 495539), Authorised Representative Number 1248807 and a financial adviser at Forward360.

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