Why Consider Purchasing a Duplex as Your First Home?
If you're a first home buyer in Victoria, purchasing a duplex might be on your radar. A duplex offers a unique opportunity - you can live in one half while potentially renting out the other to help cover your mortgage repayments. This strategy can improve borrowing capacity and help you achieve home ownership while building wealth through property investment.
But how do you go about securing a home loan for a duplex? What are the differences compared to buying a standard house? Let's explore everything you need to know about duplex purchases and the home loan options available to you.
Understanding Duplex Properties and Home Loans
A duplex is essentially two separate dwellings built on a single parcel of land, sharing a common wall. When it comes to home loans, lenders view duplexes differently depending on whether you're purchasing:
- Both dwellings on the one title
- A single dwelling that's been subdivided onto separate titles
If you're buying a duplex on one title with plans to live in one side and rent the other, you'll typically need a combination of owner occupied home loan and investment loan products. The portion you live in qualifies for owner-occupied rates, while the rental side will be assessed as an investment property.
Home Loan Options for Duplex Purchases
When you apply for a home loan to purchase a duplex, you'll encounter various home loan packages and home loan features to consider:
Variable Rate Home Loans
A variable interest rate fluctuates with market conditions. Variable home loan rates offer flexibility - you can typically make extra repayments to build equity faster and may access features like an offset account or linked offset facility.
Fixed Interest Rate Home Loans
With a fixed rate, your interest rate remains locked for a set period (usually 1-5 years). This provides certainty with your repayments, making budgeting more predictable. However, fixed rate loans often have restrictions on extra repayments.
Split Rate Loans
A split loan divides your loan amount between variable and fixed interest rate portions. This gives you the security of fixed repayments on part of your loan while maintaining flexibility on the rest.
Interest Only vs Principal and Interest
For the rental portion of your duplex, you might consider interest only repayments to maximise tax deductions. Meanwhile, the owner-occupied side would typically be principal and interest to build equity in your home.
The Home Loan Application Process for Duplexes
When pursuing a duplex purchase, the home loan application process involves several key steps:
-
Research and Compare Rates: Access home loan options from banks and lenders across Australia. Conducting a home loan rates comparison helps you understand current home loan rates and find suitable loan amount options.
-
Get Home Loan Pre-approval: Securing pre-approval strengthens your position as a buyer and clarifies your budget before you start property hunting.
-
Understand Your Loan to Value Ratio (LVR): The LVR determines how much deposit you need. A lower LVR may qualify you for interest rate discounts and potentially avoid Lenders Mortgage Insurance (LMI). First home buyers in Victoria may have access to schemes that reduce deposit requirements.
-
Consider Government Schemes: Victoria offers various programs to support first home buyers. The Home Guarantee Scheme might allow you to purchase with just a 5% deposit while avoiding LMI. Check if you're eligible for no LMI loans or LMI waivers.
-
Calculate Your Repayments: Use tools for calculating home loan repayments to understand if you need lower repayments initially or can afford higher payments to build equity faster.
Key Home Loan Benefits and Features for Duplex Buyers
When comparing home loan products, look for these valuable home loan benefits:
Offset Account
A mortgage offset account is a transaction account linked to your home loan. The balance reduces the interest calculated on your loan, potentially saving thousands over the loan term while keeping your funds accessible.
Portable Loan
A portable loan allows you to transfer your existing loan to a new property without refinancing penalties - useful if your circumstances change.
Rate Discount
Many lenders offer rate discount incentives for various reasons such as professional packages, larger deposits, or relationship banking. These can significantly reduce your interest rate over time.
Flexible Repayments
The ability to make additional repayments when you have surplus funds helps you build equity faster and reduce interest costs.
Financial Considerations for Duplex Ownership
Purchasing a duplex involves unique financial considerations:
Rental Income Assessment
Lenders typically include 70-80% of potential rental income when calculating your borrowing capacity for the investment portion. This can improve borrowing capacity compared to purchasing a standard home.
Two Sets of Expenses
Remember you'll have doubled expenses for:
- Insurance
- Council rates (if on separate titles)
- Maintenance and repairs
- Utility connections
Financial Stability and Long-term Planning
A duplex can provide financial stability through rental income while you achieve home ownership. This investment in property creates a pathway to secure future wealth and potentially expand your property portfolio.
Making Your Duplex Dream a Reality
Purchasing a duplex as your first home is an ambitious but achievable goal. With the right home loan structure, understanding of current home loan rates, and guidance from experienced professionals, you can position yourself for success.
Whether you're looking at variable rate, fixed rate, or split rate options, the key is finding home loan packages that align with your financial situation and long-term goals. Remember to factor in all costs, explore government schemes available to you, and consider how rental income will impact your borrowing capacity.
At FHOG, we understand the unique challenges facing first home buyers in Victoria. We'll work with you to access home loan options from multiple lenders, ensuring you find suitable home loan products with competitive interest rates and valuable home loan features.
Call one of our team or book an appointment at a time that works for you. Let's discuss how we can help you secure your first home loan and turn your duplex ownership dreams into reality.