Bank Valuation vs. Market Valuation of a Home
Did you know that your home has two different values? When you purchase a new home or refinance your mortgage loan, lenders often need to obtain the bank valuation of your home. This is different from the home’s market value, which you may already have an idea of. The market valuation is an estimate used to determine the property’s value on the real estate market. Bank valuation is used when you draw on your home’s equity or refinance your existing mortgage loan. It can be shocking when this amount differs from the market value you already had in mind. There a few key differences between each value.
Lenders use bank valuation to estimate the price they would be able to get for the property if they ever have to sell it, in the event that the borrower is unable to make repayments. This is because the home becomes collateral for the home loan, so lenders need to know they are lending responsibly. Lenders use bank valuation as a tool to guide them in determining how much to loan to a borrower, so they can ensure they will be able to recover that amount should they need to reclaim and sell the property. Bank valuation tends to be lower than the market valuation of a home, since the estimate accounts for selling the property to recover losses rather than making a profit. Bank valuation is a measure used by and for lenders rather than buyers. This number is an internal tool used to guide lenders and protect them from risk. You may not ever know the bank valuation of your home, and that’s okay!
The property’s market valuation, on the other hand, indicates how much the homeowner would get for the property if it is sold by the owner. Market value estimates a property’s value on the real estate market, so this is the valuation a buyer or seller would need to focus on. Market value fluctuates regularly, since there are a number of factors that can influence this value and it is much more emotionally-driven than the more practical numbers breakdown of a bank valuation. While it’s impossible to know exactly what a property could sell for on any given day, homeowners can get an idea of their home’s market value by researching selling prices of similar homes in their area.
If you’re ready to apply for a mortgage loan, let our team help you get the loan you need. Visit our Mortgage Loan Center to learn more about the mortgage process, use our Home Buying Calculators to get a picture of what your home loan will look like, and check out our Buying a Home video series on YouTube for more information about home buying. Apply for a mortgage loan online or set up an appointment to speak with one of our Mortgage Loan Officers.
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