The appraisal process for financing new construction can seem complicated at first but, as with everything else in this process, the steps you take are determined by how you’d like to finance the construction.
The two options here are if the builder will finance, or if the buyer will finance.
If you’d like the builder to fund the construction, then a “subject to” appraisal will be performed at the time of the initial underwriting.
A “subject to” appraisal is where the value of the land is based off what the home will be worth in the future. It helps you evaluate the home after the improvements have been made. “Subject to” appraisals are a good way to make sure you don’t “over improve” your home.
Appraisals are good for 120 days (180 days for Veterans Affairs Loans (VA)). If the house is not completed within this time, either a “Recertification of Value” or a new appraisal will be completed by the appraiser before the purchase is finished.
When the house is complete, the appraiser will provide a “Final Inspection” report. It’s important to note that if the builder finances the construction, the Loan-To-Value (LTV) is calculated by using the lesser of the purchase price or the appraisal.
The other side of the coin is if you – or the buyer – will be financing the construction.
In this process, there are no drastic differences between this and builder financed. This appraisal process starts off with a “subject to” appraisal performed at the time of the initial underwriting. The appraisals are still good for 120 days (180 days for VA).
If the house is not completed within this period, either the appraiser will complete a “Recertification of Value” or a new appraisal (VA exception).
When the house is complete, the appraiser will provide a “Final Inspection” report. The main difference here is that the overall cost is directly correlated to the cost of building the house.
Whether you or the builder finance the home, the process is meant to be as seamless and intuitive as possible. Some people may not know the steps to take or the questions to ask, but that’s why we’re here. Contact our Loan Officer today to find out how we can help you finance your next construction build!