When applying for a home loan, one of the key steps in the process is the home valuation. A home valuation determines the value of the property you intend to buy or refinance, and it plays a significant role in how much you can borrow, the type of loan you can get, and the overall success of your loan application.
At Bluestone Home Loans, we want to ensure that you’re well-informed about all the stages of securing a loan — including the home valuation process. In this blog, we’ll explain why valuations are necessary, how the process works, and what costs are associated with getting a property valued.
Why Do Lenders Require a Home Valuation?
A home valuation is required by lenders to assess the property’s market value. This is important because it helps lenders determine your Loan-to-Value Ratio (LVR), which compares the amount you want to borrow to the value of the property. The LVR is a key factor in the decision-making process and can impact the interest rates, loan terms, and overall loan approval.
For example, if you’re buying a property for $500,000 and the lender values it at $480,000, the difference between the purchase price and the valuation may reduce your borrowing capacity or require you to contribute a higher deposit.
How Does the Home Valuation Process Work?
The home valuation process is relatively straightforward, but it’s important to understand each step involved:
- Request for Valuation
Once you’ve chosen a property and are ready to apply for a home loan, your lender will request a professional valuation of the property. Depending on the lender, they may arrange this themselves or ask you to coordinate with an independent valuer. - Valuation Appointment
A licensed property valuer will visit the property to assess its condition and value. They will take into account factors such as:
- The property’s size, condition, and features
- Recent sales of similar properties in the area (comparable sales)
- Location, including nearby amenities, transport links, and schools
- The age of the property and any potential repairs or renovations required
- Valuation Report
After the inspection, the valuer will provide a written report detailing their assessment of the property’s value. This report will be sent to your lender, who will use it to calculate your LVR and determine your loan eligibility. - Lender Decision
Once the valuation is complete, the lender will review the report and make a decision based on the property’s value. If the property is valued lower than the purchase price or lower than your expectations, it could impact the amount you can borrow or even lead to the loan being declined. Conversely, if the property is valued higher than expected, you might have more flexibility in your loan amount or be able to avoid lenders mortgage insurance (LMI).
The Costs Associated with Home Valuations
Home valuations are typically paid by the borrower, however it will be important to talk to your mortgage broker to understand ALL of the fees, charges and bills associated with a new home loan, how it’s paid, by whom and when. This will avoid any surprises. The cost of a home valuation can vary depending on the type of property, the location, and the lender.
Here are some common scenarios where you may incur valuation fees:
- Purchase Valuation
If you’re buying a home, the lender will generally require a valuation of the property to determine its market value. This is standard practice, and the cost is typically passed on to the borrower.
- Refinance Valuation
If you’re refinancing your existing mortgage, your lender may require a valuation to reassess the property’s value. In some cases, lenders will offer a free valuation as part of a refinancing deal, but this isn’t guaranteed.
- Property Investment
For investment properties, lenders may request a valuation to assess the property’s potential as collateral. This is especially important if you’re seeking to borrow more than you initially did when the property was purchased.
- Extra Costs for Specific Valuations
If you have a non-standard property, such as a rural property, a unique architectural design, or one with unusual features, the valuation cost may be higher due to the additional time and expertise required.
- Disputed Valuations
If you disagree with the valuation provided by the lender’s valuer, you may be able to request a second opinion or challenge the valuation. However, this can result in additional fees, so it’s important to weigh the costs and benefits before proceeding.
How to Estimate Your Home Loan Costs, Including Valuation
Home loan fees and charges can add up quickly, so it’s important to factor them into your overall budget. For a full breakdown of what costs you might expect when applying for a home loan, be sure to check out our comprehensive guide on Home Loan Fees and Charges here. This guide outlines everything from application fees to settlement charges, so you can better understand what to expect when financing your home.
Key Takeaways
- Home valuations are an essential part of the loan application process and help lenders determine your borrowing capacity.
- The valuation process involves a physical inspection of the property, followed by a report detailing the property’s market value.
- Valuations costs can change, so ensure you confirm with your broker.
- There are ways to minimise or avoid valuation fees, such as seeking out lenders who offer free valuations or negotiating the fee.
Understanding the valuation process and the associated costs is crucial when applying for a home loan. While the valuation itself may be an additional expense, it is a necessary step in ensuring that your home loan application is approved and that you’re borrowing within your means.
Don’t have a broker? We can point you in the right direction HERE.
