Is a bank valuation holding you back from your dream home?
For many, owning your own home is still the definition of the great Australian dream. We crave the security, desire the lifestyle and long for the freedom that comes with home ownership.
But applying for a loan isn’t always easy. There are plenty of hoops to jump through, and organising a bank valuation is just one of them.
What is a bank valuation?
If you apply for a home loan it’s standard practice for lenders to request a valuation of any properties you own, and in most cases, you don’t get to choose who carries out the valuation, it’s done by a valuer assigned by the lender.
A valuer will assess the value of your current property, to use as security for the money the bank lends you. It might seem pretty straightforward, but a bank valuation could be the one thing stopping you from getting the loan you need to buy that dream house.
A quick run-down – valuations
There are 3 main types of valuations.
A desktop valuation is a very limited way to value a property. This type of valuation doesn’t require a visit to the property; instead it’s based on the market value of surrounding properties and recent sales in the area.
As insinuated, a kerbside valuation is conducted on the kerb or via a drive-by. The valuer doesn’t enter the property, only views the property from the street.
A full valuation of the property requires the valuer to enter your home and conduct a full valuation based on everything he/she sees inside and outside the property.
How can a broker help with your bank valuation?
The right broker can help you get the best bank valuation to meet your needs and ensure you secure the loan amount you desire. Nowadays, a select number of mortgage brokers have access to upfront valuations; these are carried out by a valuer authorised by the bank and are conducted before the loan application is presented. Upfront valuations are helpful as they protect borrowers credit ratings, and speed up the loan process.
Finance brokers are familiar with each banks’ lending criteria, so they also have the knowledge to direct you to a financial institution that suits your needs best. Brokers will have the strategies and tools to build strong relationships with the lenders, helping you as the borrower.
This is a real-life case situation and it clearly demonstrates the impact a bank valuation can have on lending.
Jo needs to refinance $730,000. She owns a home in the WA metro foothills and the following bank valuations were presented.
- Bank A – $730,000
- Bank B – $775,000
- Bank C – $926,000
- Bank D – $950,000
So what does this mean for Jo’s lending capacity?
Bank A can’t lend Jo the $730,000 she needs, as it is 100% of the loan to valuation ratio.
This valuation is a little higher, however it still has a 95% loan to valuation ratio, therefore lenders mortgage becomes payable and is estimated to be around $30,000.
Bank C valued Jo’s property at $925,000, which has a 78% loan to valuation ratio, and eliminates lenders mortgage insurance, fantastic!
Bank D presented the best valuation at $950,000, therefore it also eliminates lenders mortgage insurance and has a 76% loan to valuation ratio.
As you can see by these examples, the bank valuation of a property can have a huge impact on the cost of a loan. In Jo’s case, a higher valuation saved her $30,000!
Can a broker appeal a bank valuation?
If you and your broker feel that you have valid grounds and sufficient evidence to prove that the valuation was too low, you can appeal the lender to re-value your property. Evidence includes recent sales in the area that would influence the sale price of your property, or any new research that proves that the valuation was below market value.
As you can see it pays to work with a mortgage broker to secure the best bank valuation possible, it will save you both valuable time and money. If you’d like to find out the other ways a broker can help you get the loan you desire, call Finance Detective on (08) 9289 7777.