What is LVR?
The mortgage industry is a wide, wondrous world with a language all of its own. One of the many acronyms bandied about is ‘LVR’, which stands for ‘loan-to-valuation ratio’. Here’s what it means. When you are working out what amount you can borrow to purchase a property, the size of deposit you need to save and whether you are eligible for a particular mortgage product, the loan-to-valuation ratio (LVR) is one of the most important considerations.
How is LVR Calculated
In the simplest terms, the LVR is the percentage of the property’s value, as assessed by the lender, that your loan equates to. So, if the property you want to purchase is valued at $500,000, and you need to borrow $400,000 to pay for it, the loan is 80 percent of the property value, making your LVR 80 per cent.
Have you used any of the other mortgage calculators? Some may be applicable to your situation. Alternatively, call us on 0400 111 986 or complete our free assessment form to
find out what your LVR means for your ability to borrow.
Should I use purchase price or valuation?
If the purchase price is different to the valuation then the lender and their mortgage insurer will use the lower of the two to determine the LVR. We can order a valuation with several different lenders to help you maximise your borrowing power. Lenders place a large emphasis on the LVR when assessing your loan application. The lower the LVR, the lower the risk is to the bank. Therefore, LVR is important because different lenders and loan types have different maximum LVRs, and some lenders will only lend up to a certain LVR for small properties or properties in certain areas. Most lenders will finance 80 per cent LVR, or higher with lenders’ mortgage insurance (LMI), while alt doc loans may be limited to 60 per cent LVR without LMI.
If you’re refinancing a property that you already own then the lender will use their valuation of the property to calculate the LVR. Since you may have purchased the property a while ago, the purchase price is not relevant to the current value of the property. The property market in your area may have moved or you might have added value to the property by renovation. An independent bank valuation would be much more accurate.
How lenders will value my property?
Lenders do not always require a valuation for a property. Each lender has their own criteria of how to determine the value of a property. Some lenders will use a computer generated valuation or restricted assessment (drive by valuation), instead of a full valuation which is based on a comprehensive physical inspection performed by a certified valuer. Most banks use different methods to value your property depending on how high your LVR is and the overall risk of your application.
What is the maximum LVR I can borrow?
The LVR that the banks will allow you to borrow depends on the home loan amount you need, the location of your property, your credit history and the type of loan you that are applying for. Generally, full doc applicants (income evidence provided) can borrow up to 80% LVR with no LMI required. However, strong applicants can potentially borrow between 90% and 95% LVR!
Low doc applicants (self employed with no income evidence) can borrow up to 60% and possibly up to 80% LVR, if they’re in a strong financial position.
Some sectors (Medical Professionals, Accountants, Lawyers, Mining workers) may be eligible to borrow up to 90% LVR with no LMI required.
Can I borrow 100% LVR?
One option for borrowers who need to borrow at a high LVR loan is to have a guarantor to support the application. The guarantor is usually a family relative that has ownership and equity in another property. The guarantor puts up a portion of their property to secure a portion of the home loan being applied for. This enables you to borrow 100% LVR. It is important to structure the loan in a specific way to ensure the portion secured by the guarantor is paid as soon as possible, so the guarantor may be released from the loan. Without a guarantor, it’s impossible to borrow 100% LVR. However, there are other no deposit home loan options available where you’re not required to have a deposit that you’ve saved yourself.