When you apply, or you are planning to apply for a mortgage from your bank or any other lending institution, they are not only going to look at your ability to pay. For them to protect themselves, they are going to do the valuation of the property you intend to purchase. One of the common questions asked by homeowners is what is my house worth? This is one and necessary step in home buying.
Purpose of Home Valuation
The reason to why the bank or lending institution will do valuation is because, should you default on your loan, they will be able to sell your property at an appropriate amount to cater for the loan. In essence, these institutions do the valuation to safeguard their interests.
What is looked at during Valuation?
Banks and other money lending institutions are concerned with how much the property will sell at the current market. They are less concerned with pests and structural disrepair. In most cases, banks hire a valuation company or a valuator to do the valuation. The state of the property in question, similar properties in the area that have been sold will all be brought to consideration. Once it is performed, the valuation will be considered valid for approximately three months.
During valuation, what things come into Play?
This might blow up your mind, but it is the bare truth. When it comes to valuation, many things are not considered. For instance, money lending institutions will not consider the valuation that you performed. As if that is enough, even the real estate estimations and council rate notices are not considered either by banks when it comes to valuation and securing financing. Everything is in the hands of the bank and nothing you can do to sway the outcome either way. That is the bottom line.
How can Valuation Affect You?
Your Loan to Value Ratio (LVR) will be affected by the outcome of the bank evaluation. This will determine whether you will be required to or not to pay Lenders Mortgage Insurance (LMI). You are likely to pay LMI if your LVR exceeds 80%. Either the purchase price of the property or the valuation amount –whichever will be lower is the one that will be used to determine your LVR.
Although valuation is important, and mostly a tool for banks and other financial lending institutions, the end results will have an impact on how much you will pay them over a long term.