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Mortgages and bank valuations


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#1 Phascogale

Posted 12 February 2013 - 10:08 AM

This is hypothetical.

You want to buy a house that you are willing to pay $500K for but the bank only values it at $450K.  You only require $150K from the bank.  Will the bank still give you the mortgage you want?  Or will they say it's overpriced and say no?  Their interest is covered because of the small mortgage if you need to sell.

Just curious.

#2 Bluenomi

Posted 12 February 2013 - 10:14 AM

Generally banks will only lend you what they value the house at minus the deposit they require. So if they value a house at $450k but require a 10% deposit, they will only lend you $405k. Generally it is a bad idea to pay more for a house than the bank values it at.

#3 BetteBoop

Posted 12 February 2013 - 10:19 AM

Yes, you'll still get a loan.

They're only concerned with what happens to their money if you default on your loan.

Provided they can sell the house and recoup the money they've loaned you (plus all costs associated with doing this) then they're okay.

#4 Peppery

Posted 12 February 2013 - 10:20 AM

Yes, if you happen to default they would still be able to recover the money you owe.

#5 Coffeegirl

Posted 12 February 2013 - 10:33 AM

QUOTE (Bluenomi @ 12/02/2013, 11:14 AM) <{POST_SNAPBACK}>
Generally banks will only lend you what they value the house at minus the deposit they require. So if they value a house at $450k but require a 10% deposit, they will only lend you $405k. Generally it is a bad idea to pay more for a house than the bank values it at.


I don't think this is the case any longer.  Banks are being very conservative in their valuations and the valuations can vary widely between lenders.

When we looked at re-financing last year, we had one bank value our property $150,000 less than our current bank, yet the independent valuer valued it at $100,000 over our current bank's valuation.  so a variance of $250,000....  

Yet based on current sales in our area, the independent valuer is closer.



#6 Phascogale

Posted 12 February 2013 - 10:55 AM

I wouldn't want to pay anymore for a house than what it was worth (and would hopefully pay less and get good value).  Personally I would always look at a house as an investment and regardless of how much I loved it, I wouldn't spend more than I thought it was worth.  

I had heard that banks were reluctant to give you a mortgage (even with a healthy deposit) if they feel that you are overpaying for the house.  Hence my question.

It was more of whether a bank would be a safety net to help prevent you paying too much for a property.



#7 Illiterati

Posted 12 February 2013 - 11:14 AM

Why don't you use the banks valuation to try and negotiate a better price with the seller? If you walk away from the sale, the next potential buyer will also have to get a bank valuation that may also lead them to walk away.

#8 Mpjp is feral

Posted 12 February 2013 - 11:23 AM

We recently bought a house that we had offered a higher price for than the bank valuation came in at. The bank was lower than the independant valuation we had recieved. The bank told us they were conservative - especially in certian areas. This property was classfied as rural so teh valuations are lowered on that basis alone.

We used that to negotiate the price down. The vendor agreed to split the difference with us.

The bank loaned us the money...they didnt care about the valuation - only that their money was covered (so obviously our money made up the difference).

#9 SeaPrincess

Posted 12 February 2013 - 11:45 AM

QUOTE (Coffeegirl @ 12/02/2013, 08:33 AM) <{POST_SNAPBACK}>
I don't think this is the case any longer.  Banks are being very conservative in their valuations and the valuations can vary widely between lenders.

In our experience, this is true - bank valuations have invariably been lower than real estate valuations because the bank is only concerned with protecting their interest if you default.  Their valuation reflects what they expect to get with a quick sale, not maximising their return.

#10 Kemismum

Posted 12 February 2013 - 11:55 AM

As long as the amount you want to borrow is within the loan to value ratio (LVR) they require based on their valuation, you will still get the loan.

So say the bank requires a LVR of 80% minimum, they will lend you up to $360,000 on a property valued by them at $450,000. It doesnt matter how much you actually pay for the house, as long as you can show you can pay the difference and service the loan.

Banks are being very conservative on valuations at the moment, but yes I would use that as a bargaining tool to reduce the price if possible.

#11 Bridandzar

Posted 12 February 2013 - 08:48 PM

Personally I don't really trust bank valuations.  We have changed banks in the last month and when our house was valued I was talking to the valuer and we were discussing prices etc in the area, we then got to how much we needed the house value to come in at and surprise surprise it came out at that figure.  Then the bank told us we needed to insure the house for about $70 grand more than the valuation.............

#12 B.ChickenBoss

Posted 12 February 2013 - 09:05 PM

QUOTE (Phascogale @ 12/02/2013, 10:55 AM) <{POST_SNAPBACK}>
I wouldn't want to pay anymore for a house than what it was worth (and would hopefully pay less and get good value).


What a house is valued at by a bank valuation and what it's actually worth to a buyer are very different.

My area is old and very mixed. All the houses are around 80-120 years old. There are million dollar masterpieces next door to $150,000 dollar 'renovators delights' and a whole lot in the middle all within streets of here. We had an evaluation done on our house recently as we want to remortgage and sell (complicated). Anyway, we'll be listing for about 80k more than the valuation came back at.

The bank valuer simply compares one x bedroom, x bathroom home to others the same in the area but does not take into consideration renovations etc. It doesn't matter to a bank valuer that mine has a new 25K kitchen, a beautifully renovated bathroom and flawless polished flaws whilst the other x bedroom, x bathroom has same kitchen and bathroom it did from the early 70's with the original carpet, stained and worn.

Like I said, what a bank valuer values a house at and what it's worth are not always on par. It's a guide for the bank only and not a buyer or even a seller necessarily.

Edited by Bek+3, 12 February 2013 - 09:08 PM.


#13 lynneyours

Posted 12 February 2013 - 09:14 PM

QUOTE (Bridandzar @ 12/02/2013, 09:48 PM) <{POST_SNAPBACK}>
Personally I don't really trust bank valuations.  We have changed banks in the last month and when our house was valued I was talking to the valuer and we were discussing prices etc in the area, we then got to how much we needed the house value to come in at and surprise surprise it came out at that figure.  Then the bank told us we needed to insure the house for about $70 grand more than the valuation.............


Insure it for what?  Total loss?  The extra money would be to demolish and remove the old destroyed house and get the site to a state where your house could be reinstated perhaps?

#14 Bridandzar

Posted 19 February 2013 - 10:36 PM

QUOTE
Insure it for what? Total loss? The extra money would be to demolish and remove the old destroyed house and get the site to a state where your house could be reinstated perhaps?


No we had taken into account and insured for the clean up of the site and removal of all debris.  Even the insurance company was very stumped and couldn't understand why the bank had wanted more insurance on the house.  For the sake of an extra $40ish for the year I just got it.





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