Traditionally, a boarding house is a home with five or six bedrooms rented out to individuals while one room remains owner-occupied. The utilisation of the property can affect how the banks assess it. Banks consider property as either an investment or a standard home. This usage can affect how the property is zoned and impact the loan terms and interest rates.
Borrowing guidelines
There are a few ways a bank can assess a boarding house, and this assessment can affect how much you can borrow.
- You can borrow 95% of the property value if the boarding house is a standard home.
- You can borrow 70% of the property value if it is being used as a typical boarding house.
- You can borrow 60-70% of the property value if it is zoned commercial and is a standard boarding house with at least six bedrooms.
Other assessments
The number of rooms a boarding house has can affect how banks assess your loan. Typically, banks are more flexible with loan terms if a hoarding house has fewer than six rooms. The size of the rooms can also restrict your borrowing power. Smaller rooms, less than 40 square meters, may allow you to borrow only 80% of the value. While rooms larger than 40 square meters may let you borrow 90%. A bank may accept only 80% of your proposed rental income with a residential boarding house when they assess your loan application. This ensures that even if a tenant moves out, you still have enough rental income to make loan repayments. Boarding houses in metro and city areas are considered lower risks by banks, and it is usually easier to secure a loan for these houses. Properties not in those locations may have a more challenging time securing a loan, but some lenders may consider approving your application. With all the criteria that go into assessing a boarding house loan, working with an experienced mortgage broker is essential. A mortgage broker can help you understand your situation and help you find a lender that can work with you. Mortgage Street, a non-bank lender, specialises in unique loan situations. Our team of brokers can work with you and help you find a boarding house loan with the best rates.