Thinking about buying an investment property? Whether you're looking at your first investment property or expanding your investment property portfolio, understanding the application process for investment loans can make all the difference to your property investment strategy.
As finance & mortgage brokers, we see clients every day who want to invest in real estate but aren't sure where to start with their investment loan application. The good news is that with the right preparation and professional guidance, applying for an investment loan doesn't have to be overwhelming.
What Makes Investment Loans Different?
When you're buying a rental property, lenders assess your application differently than they would for a home loan. Investment loans typically:
• Have higher interest rates than owner-occupier loans
• Require larger deposits (usually 20% minimum to avoid lenders mortgage insurance)
• Involve stricter borrowing capacity calculations
• Consider rental yield as part of your income assessment
• May have different loan to value ratio (LVR) requirements
Whether you're considering a townhouse, apartment, or stand alone dwelling, these factors will influence your loan amount and the investment loan options available to you.
Preparing Your Investment Loan Application
Successful investment loan applications start with thorough preparation. Here's what you'll need to gather:
Financial Documentation:
• Recent bank statements (usually 3-6 months)
• Pay slips and tax returns
• Details of existing debts and commitments
• Evidence of your deposit and additional costs like stamp duty
Property Research:
• Market analysis of your target area
• Expected rental yield calculations
• Property valuation estimates
• Understanding of ongoing costs (rates, insurance, maintenance)
When you research property markets thoroughly, you'll be in a stronger position to discuss your investment strategy with potential lenders.
Understanding Your Borrowing Capacity
Lenders calculate your borrowing capacity for investment loans by considering:
- Your current income and expenses
- Existing debt commitments
- The expected rental income (usually calculated at 75-80% of market rent)
- Your ability to service the loan if the property becomes vacant
- Your overall investment property portfolio risk
This assessment helps determine not just how much you can borrow, but also influences the interest rate you'll be offered.
Investment Loan Interest Rate Options
Most lenders offer both variable interest rate and fixed interest rate options for investment loans. Each has its advantages:
Variable Interest Rates:
• Can benefit from rate cuts
• Usually offer more flexible features
• May include interest rate discounts for larger loan amounts
Fixed Interest Rates:
• Provide certainty for calculating investment loan repayments
• Help with budgeting and cash flow planning
• Protect against rate rises during the fixed period
Many investors choose a split loan structure, combining both variable and fixed portions to balance flexibility with certainty.
Tax Considerations and Negative Gearing
When applying for investment loans, it's important to understand how negative gearing might impact your property investment strategy. Negative gearing occurs when your rental income is less than your property expenses, including loan repayments.
While this creates a tax deduction, lenders will still assess your ability to cover the shortfall from your other income. This is particularly important when calculating investment loan repayments and determining your borrowing capacity.
Working with Finance & Mortgage Brokers
Navigating investment loan options from banks and lenders across Australia can be time-consuming. This is where experienced finance & mortgage brokers add value to your application process.
We can help you:
• Compare investment loan options across multiple lenders
• Structure your application to maximise your borrowing capacity
• Access lender-specific investment loan interest rate discounts
• Streamline the application process by managing documentation
• Provide ongoing support throughout your property investment journey
Making Your Application Stand Out
To strengthen your investment loan application:
- Maintain a strong credit history
- Have a clear property investment strategy
- Demonstrate thorough market research
- Show realistic rental yield expectations
- Present a complete financial picture including all assets and liabilities
Investment Loan Features to Consider
When comparing rental property loan options, consider these property investment loan features:
• Interest-only payment options
• Redraw facilities
• Offset account availability
• Ability to capitalise lenders mortgage insurance (LMI)
• Flexibility for future property purchases
The right combination of features can significantly impact your investment returns and cash flow management.
Property Market Timing and Applications
While you can't time the property market perfectly, understanding current market conditions can influence your investment loan application timing. Consider factors like:
• Interest rate trends
• Property price movements in your target areas
• Rental market conditions
• Your personal financial situation
At G&T Finance, we understand that every investor's situation is unique. Whether you're buying your first rental property or expanding an existing portfolio, our team can help you access investment loan options that align with your goals.
Ready to discuss your investment loan application? Our experienced team works with clients across Perth, WA and nation-wide to secure appropriate investment property finance. Call one of our team or book an appointment at a time that works for you.
