Getting A DHA Home Loan
Property investors are increasingly looking for strong secure yields and that is making DHA housing more popular than ever before.
In the ultra-low interest rate environment, long-term secure yield is an attractive proposition for property investors. With mortgages rates sitting in the low 2s, high yielding investment properties such as DHA leased housing, will end up being heavily positive geared. Meaning money in your pocket each week.
However, property investors do need to understand that there are a few nuances with the way loans for DHA leased houses are assessed by lenders.
One of the major appeals of DHA housing is the fact that you have a rental guarantee in place. For the most part, this is a long-term (9-12 year) lease with DHA meaning you won’t have vacancies and you won’t need to pay for maintenance.
Lenders generally assess only a portion of your rental income on any investment property as they like to have some buffer to protect against the costs of owning a property as well as allowing for periods of vacancies and things like property management fees. Most lenders in the current environment will only take into account 70 per cent of your rental income for a property.
When looking for a loan for a DHA leased property, the equation is slightly different. Because of the safe and secure nature of a DHA lease, there are lenders that are prepared to assess 100 per cent of that rental income minus property management costs.
In the event that you are paying a 16.5 per cent property management fee, that means that your assessable rental income is far higher than with a traditional investment property.
That means the lender is assessing 83.5 per cent of the rental income, compared to 70 per cent or less with a standard investment property. For savvy investors, they understand that this makes a huge difference in your ability to borrow money. Because that additional borrowing power allows you to control higher-priced assets and grow your portfolio faster.
Combine that increased borrowing power with yields as high as 6.5 per cent and you can see why DHA leased housing is particularly appealing in the current environment.
DHA leased houses also open up the opportunity for investors to access higher LVRs than many other types of traditional investment properties.
Given the safety and security that a DHA lease affords the lender, there is the opportunity with some banks to get a higher LVR and not pay Lenders Mortgage Insurance (LMI).
LMI is an additional expense, levied on borrowers, who take out a loan with an LVR of greater than 80 per cent. That means borrowers will be forced to come up with a 20 per cent deposit or be forced to pay thousands of dollars in LMI each year.
Certain lenders allow investors looking to purchase a DHA leased property, to access 90 per cent LVRs with no LMI, which can significantly boost your ability to borrow. It also means an investor is only required to come up with a 10 per cent deposit, which can significantly boost your cash-on-cash return.
For investors, these facts alone make buying a property with a DHA lease particularly appealing. However, it is important to note that not all lenders view DHA housing in the same way.
All lenders and banks have different segments of the market where they like to focus their attention and as a result, it’s an excellent idea to speak to a mortgage broker who is experienced in investment properties that are leased to DHA.
Finding the right lender and understanding the nuances of loans for DHA leased houses can end up being a great way to both boost your borrowing capacity and generate steady positive cash flow.
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