Bank help: What is a 442 Appraisal?

9 years ago

We thought we'd found a great construction loan program with BBVA Compass bank. After about 8 weeks of plans and builder qualifications and the appraisal being ordered last week... they sent over some documents that have me worried. Hidden in the documents was a reference to a 2nd appraisal required at construction completion. This is exactly what we wanted to stay away from because it means we are basically building a house for the bank and if the market dives during that period of 9 months, they can take the house away from you. Even if your credit and income is great and you can make the payments on the original loan terms. The bank rep says that yes, they need this 2nd appraisal as the bank requires the final 442. But a 442 is really just an inspection and not a full re-appraisal with the market risks associated right? Has anyone else seen this in a one-time close loan or are they just marketing it as a one time close, but in reality it isn't? Am I just looking for a reason to be worried, but in reality it is no big deal?

Any advice appreciated! :)

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Comments (9)

guitarman502
9 years ago
We have to do the same thing. After I talked to the guy that did the original appraisal and will do the final, he said he just comes to ensure the builder did what he said he was going to do (i.e. The original appraisal is done based on solid hardwood floors and the builder did vinyl, or house plans call for 3000 Sq ft and the builder only did 1200) stuff that would draw the price of the house WAY down and deviations from the original appraisal. He said it's just a final Follow-up for the bank to make sure they got exactly what they loaned for.

It'd be the same thing as you going to the bank and borrowing the money to buy a new Ferrari and instead bought a prius
robin0919
9 years ago
http://www.bing.com/search?q=442+appraisal&qs=AS&pq=442+app&sc=3-7&sp=1&FORM=QBLH&cvid=49b06774eab7409597c47ca6bc0b36d6
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, but will remove the light fixtures and hang the builders grade back up. Frankly when I just sold my condo, I removed all my quality light fixtures, packed them up to be put in my new build and got inexpensive light fixtures that looked good for resale. I also had some expensive cabinet pulls in my two bathrooms and replaced them with basic HD ones. Emma and Cpartist, so my 2700 sq ft house irreguardless of any upgrades is comparable to a builders grade, bare bones home? Well as Frank Sinatra once sang, Ain't That a Kick in the Head. lol I'm confident the house will show quite well, and i'll recoup a good portion of my upgrades, The point is if all the builder basic houses in your neighborhood are selling for $300k then you may get $310k. So even if you put 50k in, you won't get it back. As mentioned, it will make your house show better and will probably make it sell much quicker. You don't want to price it above the other houses in the neighborhood because no one wants to buy the most expensive house in a neighborhood. What happens if you're priced too high is one of two things. Either lots of folks will come through looking to see why you're the most expensive house in the neighborhood but won't write you an offer. So you'll wind up having to drop your price. Once you have to start dropping your price, it makes your house feel less desirable. Or someone will come in with a very lowball offer to see where you might go. From what you've said it's still a builder basic house, that you made nicer.
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MFatt16
9 years ago
We are doing a one time close that does not require that final inspection. That would worry me, I understand they need to make sure the house is actually being built to contract specs but that is what the inspections are prior to the draws.
Mistman
9 years ago
We built in the middle of the 2nd real estate bubble in our area 2 years ago (moved in May of '13). Initial appraisal went very well, mortgage lender was happy. It took 14 months to finish the house by then the market had shifted significantly and we were ~100k under the initial appraisal (very rural NW Oregon). It didn't work out great, we have the house but had to come up w/a significant amount of $$ to close.
I think the potential for a market shift is always a reality and depending on the time it takes to build it could be significant. If you think about it an initial appraisal is based on the market and what 'will' be built (the potential), I don't know how it can be predictably forecast for market downturns unless there's some fudge w/the initial appraisal. Now if it only takes 90-120 days to build a home, it would probably still be in the ballpark. However over a year or more there's a real chance things will change. In the past (~7-8 years ago) you could probably count on a higher appraisal over a given length of time. I wouldn't count on that these days.
All of the above is market dependent, I happen to live in an area that is still trying to recover values from 5-6 years ago. I'm sure yours will go better than mine.
redheadeddaughter
Original Author
9 years ago
Thank you everyone for your comments. The loan was marketed as as a one time close loan, but I'm not sure it is. They do require that final appraisal/inspection and claim that every single construction loan in the country requires this form. Is this true? I know what this form is... I just don't understand if it is required by all the other banks (e.g. US Bank) too in their "one time close" loans. I thought the whole purpose of a one time close was to avoid the chance of the bank taking your house away at their whim (or their appraisers) after the build. And with banks, everything is a whim.

They did confirm they will not be "pulling credit" again, so it isn't an entirely sep. escrow or anything. But still very worried after Mistman's story. (Thanks for sharing Mistman!)

Any others who have had to go through the 442 with their loans that have opinions?
MFatt16
9 years ago
I am not done yet but I looked through ours and I see nothing mentioning another appraisal or 442. I could've missed it though. Those contracts are crazy long. Call another company and inquire with them if 442 is standard for them. I had a friend in the construction loan side of things help find me a loan and walk me through stuff. I hope mine doesn't have one....... Let us know how it goes.
redheadeddaughter
Original Author
9 years ago
MFatt16- I know those contracts are so long! Our contract said nothing about the 442. Just that the bank reserves the right to order a 2nd appraisal (in the fine print). It was so vague we are still waiting on clarification. So look for broad language. But honestly, I think most "one-time" close loans do not require this. They confirm completion to specs with the draws. I'll post how it goes for sure.
edgarcardenas
9 years ago
As a lender, I can verify, based on the type of loan, a 442 would be needed just as 'Guitarman52' stated and all for the reasons he stated.
dekeoboe
9 years ago
I thought all a one-time close meant was that you only have to pay closing costs one time rather than having anything to do with appraisals.

Bank help: What is a 442 Appraisal?

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Bank help: What is a 442 Appraisal?

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