Knowing Your Worth: How Property Valuations Impact Your Mortgage
So, you've found your dream home and secured a pre-approval for a mortgage. Congratulations! But before you clink champagne flutes, there's one more crucial step: the property valuation. This seemingly simple process of determining your house's value holds significant weight in finalising your mortgage. Let's delve into why property valuations matter and how they can impact your homeownership journey.
Why is a Property Valuation Important?
A property valuation acts as a bridge between you, the lender, and the real estate market. It assures the lender that the property they're securing the loan against is worth the amount you're borrowing. This minimises their risk in case of a default, where they might need to sell the property to recoup their investment. The valuation also helps determine your Loan-to-Value Ratio (LVR). This ratio is simply the loan amount divided by the property's valuation. A higher LVR (meaning you're borrowing a larger portion of the property value) typically translates to a higher interest rate or the requirement for Lenders Mortgage Insurance (LMI).
How is a Property Valuation Conducted?
There are two main types of property valuations:
Bank Valuation: The lender appoints a qualified valuer to inspect the property and analyse comparable recent sales in the area. This valuation tends to be a more conservative estimate, prioritising the lender's security.
Independent Valuation: You can hire a registered valuer for a more detailed assessment. This can be beneficial if you believe the property is worth more than the bank's estimate, potentially impacting your LVR and interest rate.
What Happens if a Property is Undervalued?
An undervalued property can lead to a few challenges:
Limited Loan Amount: If the valuation comes in lower than expected, the maximum loan you qualify for might be insufficient to cover the purchase price.
Higher Interest Rate: A higher LVR due to the undervaluation could result in a less favorable interest rate on your mortgage.
Lenders Mortgage Insurance (LMI): If your LVR is greater than 80% (depending on the lender), you might be required to pay LMI, which adds extra cost to your loan.
Your Mortgage Broker: Your Valuation Advocate
This is where a skilled mortgage broker can be your champion. Mortgage brokers aren't just about finding you a loan; they can be your advocate throughout the process. If the bank's valuation comes in lower than expected, a good broker will:
Negotiate with the Lender: They have strong relationships with lenders and can leverage their expertise to argue for a higher valuation based on comparable properties, recent renovations, or unique features of the home.
Gather Supporting Evidence: The broker will work with you to compile documentation that strengthens your case, such as appraisals, renovation receipts, or market analysis reports.
Taking Control of Your Mortgage Journey
By understanding the importance of property valuations and how they impact your mortgage, you can approach the process with more confidence. Here are some steps you can take:
Research the Market: Look at comparable properties that have recently sold in the area. This gives you a ballpark figure of what your property might be worth.
Highlight Unique Features: If your property has unique features like a renovated kitchen or a pool, ensure the valuer is aware of them, as these can add value.
Consider an Independent Valuation: If you believe the bank's valuation is off the mark, consider getting an independent valuation to support your case.
But the biggest advantage you can have is a qualified mortgage broker by your side.
Ready to Get Started?
Don't navigate the complexities of property valuations and mortgage negotiations alone.
By working with a skilled broker, you can ensure a smoother home buying experience and potentially secure a better mortgage deal.