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VALUATIONS
Credit Assessment
When 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
The property valuation is provided by an independent valuer, who typically assesses your property in person and provides a report to the lender. The report will place a value on the property; provide 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 you believe the property is worth. If you aren’t expecting this, it can be disappointing and frustrating.
Low Valuations can sometimes be your friend
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 renegotiating. If the vendor will not budge, perhaps re-consider whether this property is the right one for you. This is particularly helpful if you’re buying in an area that is unfamiliar to you. Of course, 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 and 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.
Riskier properties
These 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 a large acreages and rural homes, units above shops and income-producing properties such as an alpaca farm or an orchard are in this category. If you are considering buying a unique residence like this, you should talk to an experienced mortgage broker about the lenders who will accept your property as security. Brokers know their lenders’ products and policies and should be able to find one who will look favourably at your application.