Before approving a mortgage, the bank values the property to confirm it provides adequate security for the loan. Understanding this step — and what happens if a valuation is low — helps you avoid surprises during your purchase.
Why banks value the property
The lender's loan-to-value is based on the lower of the purchase price and the bank's valuation. A bank-approved valuer inspects the property and reviews comparable sales to determine a market value, protecting the bank against over-lending.
When valuation differs from price
If the valuation matches or exceeds the price, financing proceeds as planned. If it comes in below the agreed price, the bank lends against the lower figure — meaning you must cover the shortfall in cash, since your LTV applies to the valuation, not the price.
Handling a low valuation
Your options include negotiating the price down with the seller, increasing your deposit to bridge the gap, or seeking a second valuation with another lender. Because valuations can vary between banks, comparing lenders can sometimes resolve a shortfall.