When you're applying for a home loan as a Defence Force member, one crucial step in the application process is property valuation. This assessment can significantly impact your loan amount, interest rate, and whether you'll need to pay lenders mortgage insurance (LMI).
Property valuation is more than just a formality – it's a key factor that determines your borrowing capacity and can influence your entire financial situation when buying a home.
What is property valuation in home loans?
Property valuation is an independent assessment of a property's market value, conducted by a qualified valuer on behalf of the lender. When you apply for a home loan, lenders need to know the property's worth to calculate the loan to value ratio (LVR) and determine the risk involved in lending to you.
The valuation helps lenders understand whether the property provides adequate security for the loan amount you're requesting. This assessment directly affects:
• Your borrowing capacity
• The interest rate you'll receive
• Whether you'll need to pay LMI
• Your access to interest rate discounts
• The overall Home Loan options available to you
How does valuation affect your loan to value ratio?
The LVR is calculated by dividing your loan amount by the property's valuation. For example, if you're borrowing $400,000 AUD for a property valued at $500,000 AUD, your LVR is 80%.
A lower LVR generally means:
• Access to more Home Loan options from banks and lenders across Australia
• Potentially lower interest rates
• No requirement for LMI (typically when LVR is 80% or below)
• More favourable terms in your Home Loan application
Ready to get started?
Book a chat with a Finance & Mortgage Brokers at Defence Loans today.
When property valuations come in low
Sometimes, property valuations come in lower than the agreed purchase price. This can create challenges for Defence Force members, particularly in a fluctuating property market. A low valuation might mean:
• Your LVR increases, potentially requiring LMI
• You may need a larger deposit
• Your borrowing capacity could be reduced
• You might need to renegotiate the purchase price
If this happens, don't panic. There are options available, including seeking a second valuation or providing additional documentation to support the property's value.
Factors that influence property valuations
Property valuers consider several factors when assessing a property's worth:
• Recent sales of comparable properties in the area
• The property's condition and unique features
• Local market conditions and trends
• Location factors like proximity to amenities, schools, and transport
• Any improvements or renovations
As a Defence Force member, understanding these factors can help you make informed decisions about which properties to consider and how much to offer.
Preparing for the valuation process
While you can't directly influence the valuation outcome, you can prepare for the process:
- Ensure the property is presented well during the valuer's visit
- Provide any relevant documentation about recent improvements
- Research recent sales in the area to understand market values
- Consider getting pre-approved for your Home Loan to understand your borrowing capacity beforehand
Understanding your home loan options
Once the valuation is complete, you'll have a clearer picture of your Home Loan options. Whether you're considering a variable interest rate or fixed interest rate home loan, the valuation will influence the terms available to you.
Defence Force members often have access to specialised loan products and may be eligible for various benefits, including reduced fees or interest rate discounts. The streamlined application process available through specialist Defence lenders can help you move quickly once valuations are completed.
Planning your home loan repayments
Understanding the valuation impact helps when calculating home loan repayments. Whether you choose variable home loan rates or a fixed interest rate, knowing your final loan amount allows you to plan your budget effectively.
Consider features like an offset account to help manage your home equity and reduce interest payments over time. These tools become more accessible when you have a strong LVR supported by a solid property valuation.
Property valuation is a crucial step in your home buying journey. By understanding how it affects your loan terms and preparing accordingly, you can position yourself for a successful Home Loan application. Remember to gather your bank statements and financial documentation early in the process to avoid delays once the valuation is complete.
Call one of our team or book an appointment at a time that works for you to discuss how property valuation might impact your specific situation and explore the Home Loan options available to Defence Force members.
