The Role of Valuations in the Mortgage Process
Posted on 10th April 2023 at 11:29
When you’re in the market for a mortgage, one important step is the process of a valuation. This is an assessment of the property’s value that’s typically conducted by a qualified valuer. It’s a key part of the mortgage process because it helps determine how much a lender is willing to loan you for the property you want to buy. Let's take a closer look at the role of valuations in the mortgage process.
What is a Valuation?
A valuation is an unbiased evaluation of a property’s value by an experienced valuer. The valuer will typically assess the property’s physical condition, its location, and comparable sales data in the area to determine its fair market value.
The valuer will usually visit the property and inspect its features, such as the number of bedrooms and bathrooms, the size of the lot, and any upgrades or renovations that have been made. They will also examine the condition of the property’s construction, roof, plumbing, electrical,systems.
Once the valuer has completed the inspection, they will compare the property to other similar homes in the area that have recently sold to determine its fair market value. This value will be included in the valuation report, which will be given to the lender.
It is important to note that sometimes the type of valuation instructed by the lender, is an automated valuation. This means that there will not be a physical visit to the property. Therefore, the current standard of the property is not assessed. The valuation amount will be based on data.
Buyers may opt to instruct a higher grade valuation. This could be a Homebuyers Report or Structural Survey. These can be costly reports, which would be paid for by the buyer. Usually, this style of report would be instructed through an independent company, rather than through the mortgage lender.
Why are Valuations Important in the Mortgage Process?
Valuations are important in the mortgage process because they provide a fair and unbiased assessment of a property’s value. This value is important because it determines how much a lender is willing to loan you for the property.
Lenders will use the valuation to ensure that they are not lending you more than the property is worth. If the appraised value of the property is less than the agreed-upon purchase price, the lender may not be willing to loan you the full amount you need for the mortgage. This is because they don't want to risk lending more money than the property is worth, which would make it harder to recover their losses in the event of default or foreclosure.
The valuation also protects you as the buyer by ensuring that you are not overpaying for the property. If the appraised value is lower than the agreed-upon purchase price, it may be an indication that the property is overpriced. This can provide you with an opportunity to renegotiate the purchase price or reconsider your offer.
Who Pays for the Valuation?
Typically, the buyer pays for the valuation. expenses incurred during the home buying process, which can include fees for services such as the valuation,, title search, and legal fees. However, the cost of a valuation can vary depending on the location of the property, its size, and other factors.
What Happens if the Valuation Comes in Low?
If the valuationcomes in lower than the agreed-upon purchase price, there are a few different options.
The first option is to renegotiate the purchase price with the seller. If the seller is willing to lower the price to the appraised value, you may be able to proceed with the purchase.
The second option is to pay the difference between the appraised value and the purchase price out of pocket. This can be a good option if you have the financial means to do so and believe that the property is still a good investment at the higher price.
If neither of these options is feasible, you may need to walk away from the deal. This can be disappointing, but it’s important to remember that overpaying for a property can lead to financial difficulties down the road.
Dragonfly Financial Services
With over 100 years of combined expertise in the financial services industry, our team are knowledgeable about a wide range of needs and situations. We will collaborate with you to find the most competitive, appropriate product for your specific needs. We are a team working in your best interests behind the scenes.
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