Common Mistakes When Buying a Unit and Choosing a Loan

Buying a unit often feels like a more straightforward path to property ownership than buying a house.

The reality is that lenders treat units differently to houses, and not understanding those differences can cost you approval, lock you into the wrong loan, or leave you paying more than you should. Whether you're looking at a beachside apartment in Mandurah or a townhouse in Rockingham, the way your lender assesses the property matters as much as the way they assess you.

Lender Restrictions on Units Can Block Approval Before You Apply

Many lenders reduce the amount they will lend when the property is classified as a unit, townhouse, or apartment. Some cap the loan to value ratio at 80%, meaning you need a 20% deposit even if you qualify for 90% or 95% on a house. Others exclude certain postcodes, building types, or complexes entirely.

Consider a buyer looking at a two-bedroom unit in Halls Head with a purchase price at the suburb's current median. They have a 10% deposit saved and meet serviceability for a 90% loan on a house, but the lender they approached caps unit lending at 80%. Without a larger deposit, they either need to find another lender or walk away from the property. The loan application never progresses because the property doesn't meet policy, not because the buyer isn't qualified.

Some lenders also exclude properties in complexes with serviced apartment-style management, student accommodation overlays, or mixed commercial-residential use. These restrictions aren't always published on rate comparison sites, which is why applying through a single lender without checking alternatives can end badly.

Strata Reports Matter More Than Most Buyers Expect

Lenders review strata reports before approving finance on a unit. They look for sinking fund balances, pending litigation, planned major works, and structural defects. If the report flags serious issues, the lender may decline the application even if your income and deposit are strong.

A buyer purchasing a unit in Erskine found this out when their lender requested a strata report and identified a dispute between the strata company and a contractor over balcony repairs. The lender wouldn't proceed until the dispute was resolved. The buyer had already paid for building and pest inspections, conveyancing, and had their finance clause deadline approaching. The settlement was delayed by six weeks, and the buyer had to renegotiate terms with the seller.

If the sinking fund sits below what the lender considers adequate for the size and age of the complex, or if levies are significantly in arrears across multiple owners, that can also trigger a decline. Some lenders require a minimum sinking fund balance of $10,000 for smaller complexes or a per-lot minimum for larger buildings. These thresholds vary widely between lenders, so choosing the right one upfront makes a difference.

Offset Accounts and Loan Features Are Not Standard Across All Unit Loans

Some lenders restrict certain home loan features when lending against units, particularly at higher loan to value ratios. An offset account might not be available, or you may be limited to a basic variable rate without redraw or portability. If you plan to rent the unit out later or want flexibility to move the loan to another property, this becomes a genuine limitation.

In our experience, buyers who assume all variable rate home loans come with the same features often lock in a product that doesn't suit their circumstances once they understand what's missing. A linked offset is particularly valuable if you're buying an owner occupied unit but expect to rent it out in a few years. Without one, you lose the ability to quarantine savings and maximise tax deductions when the property becomes an investment.

If you're comparing loan options, check what's included at the rate being quoted. A lower interest rate on a restricted product might cost more over time if you lose access to features that help you build equity or improve borrowing capacity later.

Fixed Rate, Variable Rate, or Split Rate Depends on Your Plans for the Unit

Buying a unit as a long-term home is different to buying one as a stepping stone or future rental. If you plan to live in the unit for five years or more, a fixed interest rate home loan offers repayment certainty but limits flexibility if your circumstances change. If you plan to upgrade within two or three years, break costs on a fixed rate can be substantial.

A variable rate gives you flexibility to make extra repayments, use an offset account, and avoid break costs if you sell or refinance. A split loan lets you lock part of the loan amount at a fixed interest rate while keeping part variable, which suits buyers who want some certainty without losing all flexibility.

We regularly see unit buyers lock in three or five year fixed rates because the initial rate looks attractive, then find themselves unable to refinance or sell without paying thousands in break costs when their circumstances change. If there's any chance you'll move, rent the property out, or refinance within the fixed term, either choose variable or split the loan to reduce exposure.

Loan to Value Ratio and Lenders Mortgage Insurance Add Up Differently for Units

Lenders Mortgage Insurance is calculated based on the loan to value ratio, and for units, the LVR is often treated more conservatively. If you borrow 90% on a house, the LMI premium might be one figure, but borrow 90% on a unit and some lenders apply a higher premium or refuse to lend at that ratio altogether.

That changes how much you need upfront and whether applying for a home loan with a smaller deposit is even viable. Some lenders will go to 95% LVR on units for first home buyers, but only if the unit meets specific criteria around location, size, and strata.

If you're applying for first home loan finance and relying on the First Home Owner Grant or a family guarantee to reduce your deposit, make sure the lender you choose actually supports those options for unit purchases. Not all do, and finding out after you've signed a contract is too late.

Principal and Interest vs Interest Only Depends on Whether You're Owner Occupied or Investing

If you're buying the unit to live in, principal and interest repayments help you build equity and reduce what you owe over time. If you're buying as an investment, interest only repayments reduce your monthly outgoings and maximise tax deductions, but you're not paying down the loan amount.

Some lenders restrict interest only loans on units or require a lower LVR to approve them. Others allow interest only for owner occupied home loans but charge a higher interest rate or limit the interest only period to one or two years instead of five.

If you plan to rent the unit out from day one, structuring the loan as interest only from the start can make sense, but you need to confirm the lender allows it for the property type and LVR you're borrowing at. If you plan to live in the unit first and rent it later, starting with principal and interest and switching to interest only when it becomes an investment is usually the better approach.

Finding the Right Lender for a Unit Purchase Takes More Than a Rate Comparison

Most online comparison tools show current home loan rates but don't filter for property type, LVR restrictions, or strata requirements. A lender offering a low variable interest rate on houses might not even lend on the unit you're buying, or might offer a higher rate and fewer features for unit purchases.

Access to home loan options from banks and lenders across Australia matters most when the property you're buying doesn't fit the standard lending box. A mortgage broker who works with multiple lenders can identify which ones will lend on the property, at what LVR, and with which features, before you apply. That saves time, protects your credit file, and often results in a lower rate or lower upfront costs than going direct.

If you're looking at units in Mandurah, Baldivis, or anywhere across the Peel and Rockingham regions, reach out and we'll help you match the property to the right loan structure and lender. Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions