Valuation For A Home Loan

Valuations for Home Loans

The property valuation plays a vital role in your finance application, and can be a particularly un-nerving part of the process when property values shift.

Credit Assessment - for 'risk'

When a lender's credit team processes your home loan application, their main objective is to assess for risk. First they want to establish your ability to meet the repayments for the term of the loan. Second, they assess the property as a saleable asset. In summary, can you pay for the loan and, even if you appear to be able to, as a fallback, what is the property value and how much could it be sold for?

Valuation Process - how does it work

The property valuation is provided by an independent valuer, who typically contacts you and then calls by to assess your property in person and provides a report to the lender. The report places a value on your property; provides commentary about the property and what similar properties are selling for in the area.

Expect your lender valuation to be conservative

In a high percentage of cases, lender valuations come in lower than what people believe the property is worth. If you aren't expecting this, it can be disappointing and frustrating. It is important to understand that a lender valuation will typically be conservative as their valuation interest is in the price the property would readily sell for in case you could not meet repayments, not the maximum price it will achieve after a smart advertising campaign.

Low Valuations can sometimes be useful

The valuation is effectively an audit on the property sale price, so if you have had a valuation come in below the agreed price, while it is disappointing, it could be time to start re-negotiating with the vendor and if they won't budge, perhaps re-consider whether this property is the right one for you. (This is particularly relevant if you're buying in an area which is unfamiliar to you.) If the valuation is low, but you are certain that the property is worth the sale price, you need to get your mortgage broker to obtain comparative sales figures in the area, help you challenge the valuation and even request a second one. In the end, the amount you can borrow will be driven by the certified valuation.

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'Riskier' Properties

There are certain categories of properties that may be considered "risky" by lenders. If one of these is your dream home, that's OK, but you may just have to work a bit harder to find a lender who is interested. Properties such as large acreages and rural homes, units above shops and income-producing properties such an alpaca farm or an orchard, are in this category.  If you are considering a unique residence like this, you should talk to an experienced mortgage broker about the lenders who will accept your property as security. Good brokers know their lenders' products and policies and should be able to find one who will look favourably at your application.  Talk to your local mortgage broker.