Bank valuation

My wife and I are thinking of buying a house going for an auction in vic.
The Soi quoted $1.7-$1.77m ,domain website says high confidence $1.7m.A neighbouring house in similar condition sold recently for $1.9m which we think they overpay.
Anyway, we have about $800k deposit and the 2 different banks say they willing to lend us $1.3m
Say we're stupid and if we win the auction at $1.9m as well and after stamp duty about $2m.
I'm unsure about how bank valuation will affect what they're willing to lend. Can some one help?
We don't want to pay LMI.
My questions are:
1. If the bank values the property at $1.4m, to avoid LMI, bank will allow lending of 80%x $1.4m which is $1.12m ( although preapproval is $1.3m) is that right?
2. If the bank values the property at $1.7m, to avoid LMI,bank will allow lending of 80% of $1.7m which is $1.36m. But $1.36m exceeds preapproval of $1.3m, so we can still borrow up to $1.3m?
Is that how it works?
Pls help

Thanks

 

BEFORE looking at property,
Have a good mortgage broker,
Have a solicitor

This is the reason.

 

We haven't bought. We want to know whether this is how the valuation will affect the borrowing, then we can decide how much we can bid.

 

LVR doesn't seem to be an issue here, you need to ensure you have the borrowing capacity.

 

Always try and get a credit assessed conditional approval when possible close to the time you are looking to purchase and do it for the max loan amount possible. You can always reduce the loan amount later no issues but going the other way is harder. Have you gone to 2 different places and got the same approval amount for $1.3mil? Is this the max they are willing to lend? You also need to be careful that you dont apply to too many places in a short period of time as it will fry your credit file.

Re the LVR - unless you have a special profession such as Medico, Solicitor, Accountant, Judge, Celebrity, Sports Athlete, etc then its extremely difficult to go into LMI when the loan is above $1mil.

Having the valuation come back lower than purchase price is extremely unlikely especially if the property has been purchased at auction. Theoretically speaking, what better way to determine the value of a property than a public auction?

One thing though is check the property out with your broker or banker prior to bidding on the property. They can help identify potential issues such as property being located close to powerlines, within security registers (for some lenders), lenders with postcode restrictions, etc.

 

If you don't want to pay LMI then yes 80% LVR would be the max that you can go with (unless you have a special profession as Shahin stated above which will be eligible for LMI waiver), so it'll be whatever the value banks come back with @ 80% will be the max loan amount you can get.

If you already have pre-approval of $1.3m then yes your broker can then proceed to turn that into formal with executed contract, subject to lender satisfied with any conditions that are stated in the pre-approval.

Assuming you can service for $1.36m then as an alternative you can ask your broker to change loan amount to $1.36m, but most likely it'll have to go through a full assessment again and your $1.3m pre-approval is a bit of waste. That's why we usually do pre-approval loan amount at higher level and then reduce loan amount lower when actual COS is received. i.e. you know the max you can go to but we can scale back as required

Cheers,
David