When you’re getting ready to apply for a home loan, you’ll quickly come across a lot of terms that might not make sense at first. LVR, which stands for “Loan to Value Ratio,” is one of the most important. If you understand this idea and know how to lower your LVR, you will have a much better chance of getting a loan with better terms and interest rates.

LVR meaning “Loan to Value Ratio,” refers to the percentage of the property’s value that you want to borrow from the lender. It is calculated by dividing the loan amount by the appraised value of the property and then multiplying it by 100. For example, if you are purchasing a property valued at $500,000 and you need to borrow $400,000, your LVR is 80%. This ratio is crucial because lenders use it to assess the risk involved in giving you a loan—generally, a higher LVR means a riskier loan, which can lead to higher interest rates or the requirement of lender’s mortgage insurance (LMI). Finding strategies to reduce your LVR before applying for a house loan will thus save you money and help to streamline the whole procedure.

1. Increase Your Deposit

Putting down more money is one of the easiest ways to lower your LVR. The less of a loan you need, the bigger the down payment you make, which directly lowers your LVR. Many people think that a deposit of 20% or more is best because it keeps your LVR at or below 80%, which means you don’t need LMI. In order to save more money for a house, you might want to put off your purchase for a few months or even a year. For every dollar you save, your LVR will go down by one. This will make lenders more likely to give you a loan, and you might even get a lower interest rate. To save for your deposit, cut back on extraneous spending, get a second job, or use tax returns.

2. Opt for a Less Expensive Property

Another effective way to reduce your LVR is to reconsider the value of the property you’re buying. If you’ve set your sights on a home that stretches your budget and results in a high LVR, consider choosing a less expensive property. This strategy might mean compromising on some features or location, but it can help you get a more affordable mortgage with better terms.

For instance, if you initially planned to buy a house for $600,000 but your savings are only sufficient to give you an LVR of 90%, purchasing a property for $500,000 might bring your LVR closer to 80%. This not only makes your loan application more likely to be approved but also helps you avoid the added cost of LMI, which can be substantial.

3. Consider a Family Guarantee

Consider a Family Guarantee

It can be hard for first-time buyers to come up with a big down payment. A family guarantee is one way to lower your LVR in a useful way. A family member, usually a parent, gives you part of their property as collateral for the loan. This extra security can help lower your LVR, which could help you avoid LMI and make it easier to get a loan without having to save a big down payment. However, it’s important to understand the risks involved in a family guarantee. If you do not repay the loan, your surety’s property may be at jeopardy. As a result, everyone concerned must carefully consider this decision and ensure that they are comfortable with the associated obligations.

4. Increase the Value of the Property

When you refinance an existing home, one way to lower your LVR is to make the home more valuable. By making smart changes or renovations, you can raise the value of your home, which lowers the LVR when you apply for a new loan. Making changes to the kitchen or bathroom, adding a deck, or making the yard look better can all raise the value of the property.The value of your home will go up even if your debt stays the same. Your LVR will go down because of this. You might be able to get better rates or other loan options this way.

5. Pay Down Existing Debt

Concentrating on paying off any current debt on the house can also help you to reduce your LVR. Should you be able to make additional repayments on your present mortgage, do so. Little extra payments over time can significantly lower your loan debt, so lowering your LVR.

If you get a bonus at work or have some extra money saved up, you might want to put that toward your payment. The less debt you have compared to the value of your home, the lower your LVR will be. This can make it easier to refinance or get more money.

6. Avoid Taking Out Other Loans Before Applying

Your overall financial situation influences your LVR as well as your lender’s perception of your creditworthiness. If you want to apply for a house loan soon, steer clear of other large debts like personal loans or auto loans, which would pile more debt on you. Your application for a house loan may suffer and your LVR could be raised or lowered depending on your debt-to– income ratio.

By reducing your financial responsibilities to a minimum before applying for a mortgage, you can increase your borrowing capacity and reduce the lender’s perceived risk. This may even allow you to qualify for a lower interest rate, lowering the overall cost of your loan.

7. Wait for Property Market Changes

Sometimes the best thing to do is to wait for the market to turn in your advantage. Should house prices rise in your neighborhood, your LVR will simply drop as the worth of your house will rise in relation to the loan amount you desire. This approach naturally calls for some patience as well as the capacity to hold off on refinancing or purchasing until the market recovers. Keep an eye on how the market changes to help you pick a better date to apply for a loan. If home prices in the area you want to live in start going up, now might be a good time to lock in a lower LVR without having to up your deposit.

Conclusion

Lowering your LVR before you apply for a home loan is a good way to get better interest rates, lower borrowing costs, and avoid having to pay expensive lender’s mortgage insurance. LVR meaning, which stands for “Loan to Value Ratio,” is one of the most important things lenders look at when deciding whether to give money for a house. You can lower your LVR by putting down more money, looking at homes that aren’t as expensive, getting a family guarantee, making the home more valuable, paying off debt, not taking out any new loans, and timing your buy or refinance just right.

Not only does a lower LVR make you a better customer, but it can also save you a lot of money over the life of your loan. If you plan ahead and are good with money, you can get a home loan with a lower LVR that fits your needs and goals better.