What Is It?
LVR refers to your loan amount and how much you want to borrow compared to your property’s value. To derive LVR, the amount of your loan is divided by your property’s value. For instance, if the LVR is 80%, you’ll be taking 80% of your home’s value. In real terms, if your home’s value is $400,000 and you possess an $80,000 deposit, your LVR will stand at 80%.
In most cases, 80% is the standard for calculating LVR. If you borrow more than 80% of your home’s value, it generally indicates a high LVR meaning you’ll most likely have to pay Lenders Mortgage Insurance. If the property is valued at $400,000 with an available deposit of $40,000, this will result in a high LVR of 90%. Similarly, if you make a deposit of $100,000 and borrow $300,000, it’ll result in a low LVR of 75%.
How Will LVR Affect Me?
LVR is utilized to measure the borrower’s risk. To decide whether the bank has an appetite or not, LVR is a critical determinants in home loan applications. Ideally the bank would like to see a minimum deposit of 20% before applying for the remaining amount. In most cases, your mortgage provider will be able to offer a lower rate on your home loan if your LVR is low.
Should I Use Purchase Or Valuation Price?
If the valuation and purchase price differ, your lender will adapt the lower of the 2 to measure your LVR. This is generally common in an private treaty/auction sale. The bank will only use the higher valuation if the Off the plan or land purchase contract was signed 12 months prior to settlement.
For instance, if you purchase an off the plan property for $300,000 and the value increased to $360,000 after 12 months when you’re ready to settle, the lender is happy to use the higher valuation.
Will My Property Be Valued?
There are certain banks that will not do a valuation on the property when it’s a purchase as long as they meet the below requirements, the sale price contract will be considered by the bank to determine your LVR.
- You’re not related to the seller
- The property isn’t a new dwelling (new building or off the plan)
- The purchase will be initiated by a licensed real estate agent
- The property is located in a major regional centre or capital city
- Your loan is 80% LVR or below
How Much LVR Can I Borrow?
LVR is dependent on numerous factors such as your loan amount, type of loan, your credit history and the site of your property. Typically, full doc applicants can take up to 80% LVR. On the other hand, strong applicants have the possibility of borrowing 90-95% LVR.
If you’re after a low doc solution, being self-employed, you may borrow up to 60% and possibly more if you’re financially stable.
Can I Borrow 100% LVR?
If you want to borrow a high LVR loan, you must have a guarantor. A family member who possess equity and ownership in a different property can be your guarantor. As a guarantor, a portion of their property is put up as security. As a result, you’ll be able to borrow 100% of the purchase price + Associated cost, this will eliminate the need to pay any lenders mortgage insurance.
Does LVR Get Restricted?
LVR is utilized to manage the risks associated with loan applications. For high-risk borrowers, banks may put a limit on the maximum LVR that you can borrow to minimize the risk. For instance, let’s say you have a credit file default, and you apply to purchase a property valued at $500,000 by borrowing $475,000(95% LVR), in these circumstances the bank may only allow you to borrow 80% LVR or 90% at most.
The following may also restrict your LVR,
- If the property has certain restrictions such as display homes, serviced apartments, and heritage-listed properties.
- The property is situated in a remote location
- The property is relatively unique