What is a CBA property valuation?
A CBA property valuation is a CBA assessment of a property being used to secure a home loan. Naturally, you will need to be a potential or existing CBA borrower or guarantor.
The key being it is a property valuation for CBA’s lending purposes and so, done in line with their risk policies. A CBA property valuation is not the same as a valuation you might receive from a real estate agent, or a licensed property valuer, instructed by you. They are doing it for different purposes.
It is just one part of the home loan approval process for Commonwealth Bank.
In this article I explain when you might need a CBA property valuation and how it can benefit you. And sometimes where it might hinder your plans.
CBA property valuation vs CommBank property report
A CBA property valuation is a valuation report prepared for the banks own lending purposes. It is not ordered for any other reason. The bank determines the valuation risk associated with the proposed loan and orders a valuation to suit.
This differs to a CommBank property report that can be ordered by almost any individual and used for their own purposes. It provides an estimate of value, usually represented as a range by drawing from existing data accessed by CBA.
A CommBank property report is not designed to be used for lending purposes – a valuation is.
Benefits of a CBA property valuation
Home loans are a mutual agreement. You apply to the lender with a home loan proposal. They weigh up the risk factors before arriving at a decision—hopefully an approval.
A valuation can be beneficial to both parties. Borrowers gets their loan, and the lender gets to loan you money.
Accessing equity
A valuation is a major factor in a home loan assessment. A high valuation number can establish equity. Once you have equity, you can explore home loan options.
Equity is the difference between what you own and what you owe.
I like to use the term, “useable equity” – the amount of your equity able to be borrowed.
Borrowing all of your equity will leave a lender fully exposed to a 100% LVR – not an overly attractive proposal for lenders.
Useable equity depends on many factors:
- Property type
- Property value
- Intended loan purpose
- Maximum LVR
- Income sources
Common purposes I see for accessing equity using a CBA property valuation are:
- Renovation
- Holidays
- Invest in property. I explain how you could structure loans for investment properties in my other article.
- Invest in shares
- Invest in business
Loan approval – Valuation amount
Lenders have different valuation processes and systems. This means they can have different valuation amounts for the same property—particularly in the case of a refinance as there is no contract of sale naming the “price”.
A CBA property valuation can be the difference in a borrower moving forward with their plans and them being stopped in their tracks due to a low valuation.
Mortgage brokers fill an important strategic role here. Having access to various lender valuation systems can enable multiple valuations with different lenders—and hopefully multiple borrowing choices.
Is property type acceptable?
Not all properties are acceptable to all lenders. A CBA property valuation can be more informative to a lender than just a number.
A property might sit outside the conventional lending square. Say it is a regional property on a lot of land.
Valuers can be asked to comment on property risk factors, zoning and other areas that can impact the suitability of a property for home loan purposes.
An experienced mortgage broker can save time by understanding the features of the property being used for a home loan. Any valuations they order can be with lenders who are likely to accept the property as security.
Construction funding
Skilled valuers can assign a value based on a construction contract. In the case of a CBA property value, the valuation for construction will likely be an as-if-complete valuation.
This will enable calculations of construction loan LVRs and making an amount available for construction funding.
Retaining access to home loans
In the case of borrowers with multiple properties with CBA, I have seen borrowers use a valuation to keep some or all of their loans after releasing a property – commonly through a sale but not always.
If a borrower wishes to hold some, or all, home loans open, a valuation of the remaining properties might demonstrate enough equity to keep these open. A CBA discharge authority can be used to tell the bank which loans you want to keep or close.
Why keep a loan open? If the borrower can see these loans continuing to meet their goals and objectives – and they can afford them, why not?
I share how to keep a loan open when you sell a property here.
Improving interest rates
Valuation determines the ‘V’ in LVR – Loan to Value ratio. The lower the LVR the lower your interest rates could be. Lenders have ways to check your value and whether your LVR as improved as part of any interest rate negotiation.
Do I need a CBA property valuation?
For new or prospective CBA customers, a new home loan application requires a valuation as part of the initial home loan approval process. This could be as part of a refinance home loan or new property purchase.
For existing CBA borrowers, some requests to make changes to existing home loans can trigger a valuation. This is because CBA consider the request potentially increasing their exposure to your property.
I always receommend starting with a mortgage broker discussion to understand options that are specific to your situation. I introduce borrowers to brokers here:
Loan change requests unlikely to trigger a bank valuation can be:
- Changing your repayments from monthly to weekly
- Changing your product type from a variable home loan to a loan offering more repayment certainty – like a fixed home loan.
Here are some scenarios I have seen that can trigger arequest for a CBA property valuation.
Increasing your loan amount – Example
A $20,000 increase to a home loan may sound trivial. But look at this example from a lender perspective.
Borrower buys a $500,000 home with a $400,000 home loan. A CommBank property value of $500,000 puts the proposal in a comfortable category with a loan to value ratio of 80%.
One year later the loan balance is currently $390,000 and the borrower needs an extra $20,000 for renovations.
This means increasing the loan limit to $410,000. Based on my mortgage experience, increasing a loan limit requires a full assessment of the borrower’s financial position.
CBA would likely require a valuation to review their loan exposure. I share two possible outcomes below:
If valuation higher:
A Commbank property value of $530,000 against a proposed loan of $410,000 is still under 80%. Still a comfortable risk.
If valuation lower:
A lower valuation of $490,000 against $410,000 puts the LVR over 80% so in a higher risk category—and potentially paying lenders mortgage insurance.
Subdividing your property
Subdividing an existing property needs the consent of your lender.
The property you may be proposing to subdivide is underpinning you home loan. So, any changes to that title will require lender consent.
Luckily, most lenders have a good process for this and I touched on how to start this process for CBA borrowers in this article.
An acceptable valuation and acceptance the proposed new titles as security is a key part of CBA consenting to a subdivision.
CBA Discharge
A CBA discharge process is commonly used to release any property used to secure a CBA home loan. I see these commonly used to release a property that is sold or refinanced to another lender.
Unless all CBA home loans are set to close, CBA will likely require a valuation of any remaining properties to ensure they remain comfortable with any loan exposure.
Substitution – Home Loan Portability
A security substitution (also referred to as home loan portability) is a process where borrowers take their home loan with them to a new property—without applying for a new home loan.
There are of course eligibility criteria which I explain here.
At the heart of a home loan portability process is borrowers are changing the security underpinning a home loan. This will require a valuation of the new property to ensure both its acceptance as security and that the loan to value ratio remains acceptable. I share a real example of security substitution in this article.
Transferring a property between spouses
I commonly see spousal transfers in separation or asset protection scenarios.
Changing names on a title seems straightforward, the ownership of the property is changing. There may or may not be an exchange of money, but either way, a change in ownership structure is a prompt for a CBA property valuation to review risk exposure on any associated home loan proposal.
Releasing a family guarantee
Sometimes family members will help with a house purchase by way of a guarantor home loan.
Depending on how the home loan has been structured, a valuation can help demonstrate enough equity exists in the primary property – so the guarantor can be released from their obligations.
How do I get my CommBank property value?
An accredited mortgage broker or CBA lender can advise the likely valuation type and process that suit your individual circumstances.
Most CBA valuations are a cost absorbed by the lender, so it is not something that you order as a health check.
The CommBank App can provide this sort of property value estimate and insights.
CommBank also offers free property reports that can provide value estimates and information.
Valuations can impact access to equity, as well as home loan rates. A benefit of using a mortgage broker is they might get a valuation indication from a few lenders—in client’s best interests.
Valuation considerations
Borrowers and lenders rely on valuations as a cornerstone piece to managing the risk associated with advancing home loans.
For all the opportunity that valuations can provide. Borrowers (and buyers) need to be mindful of the following pitfalls of an unfavourable valuation assessment. This may lead to an application not proceeding or invite extra conditions to meet prior to any approval.
Adverse features of a property
A habitable home is key to CommBank accepting a residential property as security for a home loan on their standard terms. A CBA property valuation can flag if a house is not acceptable as a security. An extreme example of this is a half constructed house, or an abandoned home with smashed windows and no connected utilities.
While a property might have a “value” it still needs to be an acceptable type of property for CommBank to use as security for a home loan.
There may still be ways to finance such a property using a mortgage broker.
Reduced access to equity
If you are reliant on a valuation to access equity, a low valuation could mean less useable equity. This could mean a higher than anticipated cash contribution is required if equity is needed to purchase another property.
Higher interest rates
Lenders generally reward low loan to value ratios with low interest rates. If a Commbank property value comes in lower than expected, you need to see if there are any interest rate implications.
Lenders mortgage insurance (LMI)
I wrote about lenders mortgage insurance and how this can be a significant cost of borrowing. It can also be the cost of an opportunity.
Borrowers need to be aware how LMI can come into play when loans are being re-structured or topped up for existing properties.
If in doubt about where you stand with a valuation, make sure you contact a broker. They may have access to a lender with a valuation policy to suit your situation.
FAQs
When should you do a CBA property valuation?
While not always possible, it is preferable to understand a CBA property value early in the home loan approval process. There is nothing worse than weeks spent waiting for a home loan application assessment – only to be told it is approved subject to a valuation.
…..and then the valuation comes in low and it all falls over.
If a valuation comes in lower than anticipated, a mortgage broker may be able to investigate other options, including other lenders for a way forward.
Is a CBA property valuation worth it?
Yes – when used as part of a CBA home loan approval or loan change process. The earlier you understand your valuation and what it may or may not enable – the better.
How long does it take for a bank to value a house?
In the case of an online valuation – can be minutes.
If access is required to a property – usually under a week.
How much does a valuation cost?
More often than not, standard valuation costs are waived and absorbed by CBA. You should always make your own enquiries around this.
Can I use my CommBank property value at another lender?
Very unlikely. Processes are lender specific. You will most likely need to new valuation in line with the alternate lender’s process.
How long are valuations valid for?
Some valuation types are valid for 45 days. Others for 90 days.
Final word on CBA property valuations
I have ordered hundreds of property valuations with CBA.
I wrote this article because it answers the many questions and scenarios I have worked though over my time in mortgage broking.
My key message:
CommBank property valuations are ordered for CBA’s mortgage purposes.
An accredited mortgage broker can help borrowers, both new and existing, when it comes to understanding when a valuation needs to be part of a home loan approval process.
Even better, is a mortgage broker that can recognise when a CommBank property value can improve your position.
