Know the value of your reno before the lender does

Know the value of your reno before the lender does

Posted on Thursday, November 22 2012 at 10:23 AM

As the renovation market booms across much of the nation in the lower to mid price range of housing, many investors and homeowners who bought in the past year or two are wondering if they’ll be considered for finance given they’ve achieved little or no equity in the property since. But they shouldn’t throw in the towel on the renovation finance idea, according to finance experts.

The way around the finance obstacle is as simple as
extending the mortgage – also known as a ‘variation’ – and seeking an
independent valuation prior to application stage. But just how flexible are
lenders towards this practice? API experts offer some tips on getting the most
favourable valuation to succeed in finance.

Finance specialist David Thomas of Trilogy Investment
Property Funding says if investors are seeking a variation on their home or
investment loan, they first must be able to prove that the added value of the
proposed renovation exceeds the cost, because the lender wants to know their
investment in your property is a safe one.

While there are plenty of good sources and seminars
one can turn to for tips on adding value, or what their property may be valued
at with a specific renovation, Thomas says these sources don’t work with
lenders and won’t tell you what the added value means to your individual
property in a particular geographical area.

“It’s the independent property valuer that will make
or break your chance of seeking finance. He or she is the one who provides the valuation
report to the lender,” he adds.

“The valuer can come out and give you a consultation
and report on what value your proposed renovation can add to your property
value, they can even tell you where you’re best off spending your $40,000 to
$50,000.”

Depending on the valuation firm, a consultation and
report can cost from around $250 to $500, he says.

The benefit of contacting an independent valuer for
this consultation and report is that once the property owner is satisfied with
the proposed renovation and estimated added value, this report can be lodged
with the finance application and will put the property owner in a more solid
position for achieving the finance.

“In many cases the lender will base their decision on
the valuation report provided,” he says.

Finance broker Lisa Sanders of Your Future Strategy
agrees with the idea of engaging an independent property valuer prior to
lodging an application for a variation to an existing home loan.

“The valuer will consider what the current value is, then
what the scope of works is and what the added value will be,” Sanders says.

She adds that engaging an independent valuer before
the lender even knows about your application is a clever way to take more
control over the process simply by not being left in the dark on what a
lender’s valuer will determine your added value to be.

“From this point on the lender may only verify the
valuer’s report with an online valuation of their own, while others may send
out another valuer,” Sanders says.

At least it puts the property owner in a clearer
position from the start, she adds.

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