How can valuation risk affect loan approval?

• A. Valuation has no impact on LVR.
• B. Valuation only affects insurance requirements.
• C. If valuation comes in lower than purchase price or loan amount, LVR increases and approval or terms may change.
• D. If valuation is higher than purchase price, approval is guaranteed.

Answer: (C)

Valuation risk matters because lenders base their decision on the property’s actual value. The loan-to-value ratio (LVR) is the loan amount divided by the appraised value. When the valuation comes in lower than the purchase price (or the amount you want to borrow), the property's value supports a smaller loan, so the LVR rises. A higher LVR signals higher risk for the lender, so the approval or the loan terms may change—examples include needing a larger deposit, lowering the loan amount, or potentially requiring mortgage insurance or even declining the loan.

If the valuation is higher than the purchase price, the LVR falls, which can make approval easier and may improve terms, but it does not guarantee approval because other criteria still apply.

Valuation directly affects LVR; it’s not only about insurance requirements, and a higher valuation does not automatically guarantee approval.