Construction Loan Appraisal Methodology
Keepthefaith MIGirl
4 years ago
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just_janni
4 years agoRelated Discussions
Plan appraisals for construction loan?
Comments (32)Appraisals are required by federal law if financing is involved. While the purchaser or homeowner pays for the appraisal, it is owned by the lender. It is designed and required in order to protect the lender. People completely misunderstand the relationship. The appraiser works for the lender, not the builder or the borrower. Rarely does a potential homeowner understand the appraisal process. Most realtors don't really understand it, either. There are lenders that don't understand it. New construction is a very risky form of lending. Lenders see you and your project as a risk. The cost to custom build is always higher than the cost to production build. The lender is just trying to protect itself. The law requires it. I sympathize with you. I have been on both sides of the issue. When I built my custom home, I brought more than 50% to the table. This reduced the lenders exposure and they were tripping over themselves to lend me money. If you are bring less money to the table, it becomes much more risky for the lender and they aren't as enthusiastic. Ideally, new construction will be compared to new construction. It is almost impossible to find a similar comparable that is new custom construction. The comparable must have been an arms length transaction (in the MLS or widely advertised and available if there is no MLS in the area). This means the appraiser will try to select the newest, most similar homes available. They must also be in close proximity to the subject proposed home. If you are in a rural area, the distances expand along with the closing time. Once a "most similar" is selected, it's features are compared to the subject property. The differences will be assigned monetary values based on data and experience. A final determination of valuation is made after at least three properties go through this process. Additional comparable properties can be added to support the valuation or to include some element of the proposed property. As a retired appraiser, all I can say is if you want to borrow money, you will have to go through a very confusing, frustrating and expensive process in order for someone to lend you money. If you didn't need someone to lend you money, you wouldn't need the financing. You could just pay cash. The more cash you bring to the process, the less the lender will require because you have reduced their risk....See MoreFeeling kind of bummed, loan did not approve due to low appraisal...
Comments (31)You can do this for less, especially if there are no load-bearing walls involved (which is often true in condos and townhomes). We opened up our kitchen and completely remodeled it using Ikea cabinets and custom granite for about $25k total. Ikea cabinets were $6000 including 2 tall pantries, Ikea installation is $2500, countertops were $5000 installed (you could go cheaper with prefab), and we got a new range $1000 at Ikea and hood $300. Backsplash tile was the Home Depot white subway and totaled about $250 for materials. The rest was labor for the contractors demo, drywall repair electrical and lighting, and permit. And we live in a very high cost area, quotes for renovations ranged up to $100k for this job. I planned the layout in Ikea designer with the help and advice from the gardenweb kitchen forum. Our kitchen was "liveable" after we did a major facelift in 2012 when we bought it (painted peeling old cabinets, concrete skim coated the awful old tile) but it was very poorly laid out, not nice to work in (including stve right beside doorway with no landing area), had very little storage considering the 3 walls of cabinets (few drawers, cavernous blind corners) and felt closed off from the rest of the house. We love our new kitchen and even if it doesn't add significant value to our home (we know we over-improved a bit) we find this kitchen a joy to cook in and entertain guests from, and we also plan to be here at least 5 more years so we wanted to have a kitchen we'd enjoy for the indefinite future....See MoreFirst post! Help me understand construction loans.
Comments (13)We just closed on our construction loan on 8/15 and I can honestly say it was quite complicated. We went to bank 1 in May and the appraisal came in $35000 under what we needed, therefore we had to bring $100,000 ( not including closing costs) in cash to close. We own our land outright. This was not going to fly. So we went to bank 2 and their appraisal came in at budget and our bank was willing to do 90% ltv. However, we wanted to stay out of pmi. We couldn't be happier with bank 2. My advice: shop around and local banks were much more accommodating. Also, appraisal is everything. It will ultimately determine how much you bring to close. I didn't realize how the appraisal process worked for construction loans. I was under the impression I was getting a loan to build, but the appraisal accounted for the build and the land. The land counted towards our down payment but we brought more cash to close to keep our mortgage low. Unfortunately we are in an area of the country that has not quite recovered from the housing crisis. Good luck...See Morejumbo construction loan with new construction ADVICE needed!
Comments (19)My husband and I ran into a similar problem when we had our big addition/remodel. What my husband did was contacted both the bank and the appraisal company and showed them our building plans and asked that they base the appraisal on the prospective build out. The bank worked with us. The residential lending officers actually visited our home on three separate occasions to ensure that we were in fact upgrading the home to the level we proposed we would, understandably they needed to ensure their money was going where it should be. So about midway through the project they increased our construction loan by 25,000, and 3/4 into the project they gave us the final 40,000 they agreed to lend us. This was still about 25,000 shy of our desired amount. In addition to our discussion with the bank, we sat with the contractor and asked where we could cut some corners. He offered us the opportunity to do some “homework” throughout the project which included cleaning up the work site at the end of the day ourselves and preparing the area for the following day, drilling holes in the framing to save a ton of time that we would normally pay the electricians 125 per hour to do, and the biggest savings was painting the house ourselves. You may not have the time or desire to do this much hands on but I gotta day not only did we save enough to complete the project, but we came in under budget enough to furnish a few of the rooms. Best of Luck!...See MoreKeepthefaith MIGirl
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4 years agoBrad
4 years agoKeepthefaith MIGirl
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4 years agojust_janni
4 years agoKeepthefaith MIGirl
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4 years agobry911
4 years agoJeffrey R. Grenz, General Contractor
4 years agoKeepthefaith MIGirl thanked Jeffrey R. Grenz, General ContractorKeepthefaith MIGirl
4 years ago
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