Securing a home loan for a property in a flood zone may be challenging. However, depending on how often flooding occurs and a borrower’s financial situation, they may be able to secure a home loan from specific lenders.
Borrowing amounts
Flood zoned properties are considered high-risk for lenders, meaning they may be reluctant to approve your home loan. In addition, they may require extra documentation such as flood records or a valuation report. However, in some instances, an individual may be able to borrow the following amounts:
- If the property is located in a flood zone that floods on average every 100 years, they can borrow 95% of the value.
- If the property is located in a flood zone that floods on average every 50 years, they may be able to borrow 80% of the value. However, this is assessed on a case-by-case basis. They can increase their chances by being in a stable financial situation with a steady income.
- Most lenders will not approve home loans for properties located in zones that flood every 20 years or more frequently. This is primarily due to loan terms. The standard loan term in Australia is 30 years.
What do banks require a borrower to have?
Banks often set criteria borrowers need to meet to secure a home loan for flood-affected properties to lower their risk of not being repaid. For example,
- There must already be an existing home on the property. If there’s not, they must be allowed to build one.
- The property needs to be insured.
- The floor height must be higher than the maximum flood height.
- In addition, the banks may require the bank valuer to assess the property as an acceptable risk.
Home loans for flood-affected properties can be challenging to secure. Not only does your client need to meet the above requirements, but they may also need to be in an excellent financial situation. If they are considering purchasing this type of property, Mortgage Street and our team of brokers can help. As non-bank lenders, we have fewer requirements and less strict lending policies.