In particular we focus on getting the loan structure right the first time, choosing which lenders to use in the right order (yes this is important) and finally getting our clients the best deal possible.
Loan to Value Ratio (LVR)
What is an LVR
A loan to value ratio or LVR is the term used to describe the debt level held against a security property expressed as a percentage. So for example a $500,000 loan secured by a house worth $1,000,000 would be expressed as - 50% LVR.
The loan to value ratio is the most important ratio used in lending. Lenders will set their policy based on maximum LVRs for certain loan types and purposes. For example, a lender may have a maximum LVR of 80% for an equity loan for investment purposes, while they may have a 95% maximum LVR for an owner occupied purchase.
Please see or 95% home loan pages for the maximum LVR currently allowed and other details about the specific requirements to be approved for high LVR loans.
How to calculate a loan to value ratio (LVR)
Loan to Value Ratio (LVR) is calculated and expressed as a percentage by dividing the loan amount by the lower of either the purchase price or the security value. For example a $240,000 loan secured by a $300,000 house would be an 80% loan to value ratio (LVR).
Purchase price or valuation for LVR
When calculating the LVR for a purchase of a property, a lender will take the lower of either their valuation amount or the contract price. Normally the price paid and the valuation amount will be the same but very occasionally the valuation will be less than the purchase price. This can cause problems with loan approvals as it means the loan to value ratio is higher than was anticipated. For high LVR loans, this will increase the mortgage insurance premium charged. Also if the valuation is significantly lower than the purchase price, it can sometimes cause a loan to be declined as it would then fall outside the lenders maximum LVR guidelines.
For other sorts of transactions, such as a refinance, the valuation amount will always be used over the client’s estimated value for calculating the LVR.
We have access to one lender who will consider using the valuation amount if it is higher than the purchase price, on the provision that the contract for sale is older than 3 months. This can be useful for off the plan purchases where the market in general has increased and a borrower wishes to gear up as much as possible.
Ordering valuations upfront if the LVR is crucial
At Mortgage Experts we can order valuation upfront with some lenders. This eliminates the need to submit a loan application if the valuation amount / LVR is crucial to the likelihood of the high LVR loan being approved.