All Topics / Finance / Loan based on Market Value or Purchase Price?

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  • Profile photo of kong71286kong71286
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    @kong71286
    Join Date: 2009
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    G'day fellow investors,

    Recently registered for a 7 day trial of http://www.realestateinvestar.com.au/ and stumbled upon a 3 bedroom, 1 bathroom, 1 garage property in Mildura that is on the market for $95,000 and APM estimates its value to be between $141,000 with a confidence score of 3.

    When a bank states they will loan 80% LVR, does this refer to the purchase price or the market value of the property? i.e. would they provide 100% financing for this property which is 67% below estimated market value, or only 80% of the purchase price?

    Profile photo of TerrywTerryw
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    @terryw
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    It would be the lower of the market value or contract price. If you buy if for $95k that is likely the value that it will come in at

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of Rick staRick sta
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    @rick-sta
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    Exactly, if you secure the property for 95k then that is seen to be the market value, because that's what the market is willing to pay.

    Profile photo of Nigel KibelNigel Kibel
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    @nigel-kibel
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    My understanding is it is the contract price or valuation whichever is the lower. In Australia even if the valuation comes in higher than the contract price they will only lend against the lower amount. Unlike New Zealand where the bank will lend on valuation

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    Profile photo of TheFinanceShopTheFinanceShop
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    It's the lower of the valuation or COS however in most cases the valuation comes back the same of the COS price so that is what the bank takes as the security value. There is scope to go back even as early as 3-6 months after the purchase and have the property re-valued however you will need to have a strong case as to why the property has since increased in value.

    Regards

    Shahin

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    Profile photo of TerrywTerryw
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    @terryw
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    It is very rare for a val to come in over purchase price. I had one once with a unit. Similar unit next door sold for about 20% more. The bank was able to give a 95% LVR loan based on pp, but not LMI because they are able to base this on valuation.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
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    Definitely based upon purchase price or valuation whichever is the lower. 

    In the old Challenger days they used to actually lend on valuation rather than the lower of the two but those days have been and gone.

    Commercial lending can be different with a little more flexibiliity.

    Buy the property and borrow based on the 95K and then get your Broker to arrange a new valuation in 3 months time (without lodging a formal application) with supporting sales evidence and get the lender to allow a loan increase.

    Repeat and go again on the next property.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
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    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of JeanoJeano
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    @jeano
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    You can always get it valued by another valuer

    Cheers

    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
    Join Date: 2010
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    If it was a favorable purchase (which this isn't) then we can get lenders to take the value.

    99% of the time, the valuer will simply value it at purchase price and that's what the lender will go off.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
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    Profile photo of kong71286kong71286
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    @kong71286
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    Thanks for all your input and for clarifying the finance query yes

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
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    Hate to say getting a second valuation wont do you any good as the loan is still based on the lower of the two figures.

    Got one here in Brisbane where the valuation came in at $40K over the purchase price (Very unusual) however we can initially only lend against the purchase price. Nice for future equity release though.

    Depending on the numbers and you own particulars with an initial 10% you could possibly borrow circa $105,000 against the property and then piggy back the funds onto the next deal without having to wait for the equity release.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
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    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of FreckleFreckle
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