What can go wrong and how to avoid it happening to you!
We’ve scrimped and saved. We’ve waited, agonized and prayed… and FINALY we heard back from the bank and the appraiser. Our first appraisal did not go well. In short, our project appraised for several thousand dollars less than it would cost to build. If we tried to move forward with that appraisal we would haven been required to fork over some serious cash… that we did not have.
Click here to learn more about contruction loan process and how we saved $22,000 in six months!
The second appraisal took 30 days to come back… despite reassurance that it would only take two to three weeks (as we have learned the hard way… waiting longer than expected is par for the course when building a home).
Click here to learn How Long Does It Take to Build a House?
The 30 day wait was SO worth it though! Our new construction appraisal came back the second time at $40,000 OVER how much our project costs to build. When you factor in the value of our land that gives us $4,000 of equity before we even move in! We are jumping for joy…. literally. Picture us crying like babies and leaping like toddlers on Mountain Dew!!
This means that our construction loan will now be able to fund all of our project except for the required 10% down payment…. which is WAY LESS than we would have had to beg borrow or steal to push this project through with the first appraisal.
How do appraisals work for new construction projects?
The bank will collect your plans, contract and information about our land from you and your contractor. This information is then sent to one of their appraisal officers. The appraiser’s job is to look at comparable homes in the close by to see how much they believe your home in your area would sell for once completed. They will evaluate your plans, your builder’s skill (if known) and visit your property to gather information to reach their conclusion during this process.
How much do new construction appraisals cost?
Ours cost $300, though, this fee varies from bank to bank. The coest of the appraisal is usually factored into closing costs but if you aren’t able to move forward with closing on our loan you will be issued a bill to pay for the appraisal.
We have learned through this process that it is the appraisal that can truly make or break a home contruction project! Follow the tips below for a smooth process the first time through…
What You Should Know Before an Appraisal
- Ask your bank if appraisals for home loans have been an issue recently. It was a surprise to us and our builder that our first appraisal came back so abysmally. To his knowledge, appraisals were generally coming in an the cost to build, so getting a construction loan hadn’t been an issue for his customers. Turns out, the bank can tell you if there has been a trend in appraisals coming back lower than the cost to build. This mostly depends on the housing market at the time of appraisal.
- Ask for the most generous appraiser. This isn’t always an option, but if your loan officer is able, this might be what makes or breaks your appraisal. Most banks have to rotate between appraisers BUT your loan office might be able wait to submit your project for appraisal until they know a generous appraiser is next on rotation. Banks want you as a customer. If they are concerned your appraisal may not come back favorable they may be motivated you help you out here.
- Get a contractor with a great rep. Both our loan officer and our appraiser were familiar with our contractor’s work and were very impressed by it. This helped our cause a great deal because they knew they were forking out money to someone who would create a beautiful and reliable end product.
**Bonus Tip**: Be patient. Trust us when we say, we understand. The waiting process is brutal! This isn’t something you want to hurry along though. Give your appraiser the time to really do a thorough job without feeling badgered or rushed. If there was ever a time to get on someone’s good side it’s now! You want them to be of a generous frame of mind when they are deciding on the value of your future home!
Hang in there! There is more progress to come… slowly but surely. If patients isn’t already one of your strengths build a house. It’s sort of like a “boost your patients” boot camp. 🙂