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Multiple Appraisals for a Construction Loan? The Details an Owner Builder Needs to Know

Tags: owner builder, loans, mortgage, owner builder construction loans, real estate

If you want a mortgage, you need a real estate appraisal. If you want to be an owner builder and need a construction loan, you will need two appraisals wrapped into one. An owner builder construction loan will require an appraisal prior to construction and one follow-up appraisal upon completion. Knowing the details of this system will help you get the construction loan you want.

As an owner builder, you probably already know that your construction loan will require an appraisal that is completed prior to closing on the loan. But, did you also know that an owner builder construction loan will almost always require a quick, follow-up appraisal once your home is finished? If you understand the basics of this follow-up appraisal, you will be able to plan accordingly and set up your owner builder loan to your advantage.

Let 's start with the first appraisal that is required for all owner builder loans. This first appraisal is known as a plans and specs appraisal, because the appraiser will base his valuation of your future home on the home plans and the material specifications. In other words, your appraisal will take your plans, go out to your land, and determine what the value of the home will be.

Like any home and any loan, the value of your home for an owner builder project will be based on the recent sale prices of similar homes (on similar size land) in the immediate vicinity of your property. So, if you are building a home that is out of the ordinary for the area, you will have trouble getting a passable appraisal. But, that is a lesson for another day. For now, let 's focus on how the plans and specs appraisal works in conjunction with the follow-up appraisal when your home is completed.

Because your owner builder construction appraisal is based on your plans and material specifications, you are therefore agreeing to use the loan money to build the house strictly in accordance with the blueprints that were used for the appraisal. For example, you may have an appraisal that estimates a value of $400,000, partly due to the stainless steel appliances and hardwood floors that your home plans specified.

An owner builder lender is not going to allow you to change your mind and put in materials that are going to lower the value of the home. In other words, if your owner builder construction budget that you set up was tight on funds, don't make the mistake of trying to downgrade your materials to save money and build within your budget. If your home plans call for luxury finishings such as stainless steel appliances and hardwood flooring, then you better make sure your budget has enough money to install these items.

The lender is not going to be very happy when you try to install carpeting and low-end appliances, because your follow-up appraisal is going to show that the value of the home is not as high as initially projected. The bank agreed to the owner builder loan based in large part on the appraised value. Therefore, you must do your part as the borrower to ensure you build as closely to the specifications in the initial appraisal as possible.

But, what if the opposite situation happens? What if you have plenty of padding in your budget and you want to upgrade your flooring or your appliances or any other finishing material? As an owner builder, you have the freedom to do exactly this. You can always upgrade the finishing material items in your home as long as you meet two criteria: 1) you don't need extra funds from your owner builder construction loan, and 2) these upgraded materials will increase the value of the home.

Within this revelation lies the secret to successfully setting up your owner builder loan. Understand that the lender wants the follow-up appraisal to be as high as possible, but that an overly inflated value on the initial plans and specs appraisal might force the lender to require a larger amount budgeted for your loan. And, this increased budget might push your loan beyond your qualifying limits.

So, as the owner builder, you should take advantage of this knowledge. If you are going to save a ton of money during construction by cutting out the costs of the general contractor, then you might have the room to pad your budget. Be smart about it. If your initial plans and specs appraisal is going to be high enough for the loan, you may want to provide home plans with lower end materials. Just make sure you have enough padding in your budget to upgrade to the materials you really want. Then, once your home is completed with these nicer materials and well within your owner builder budget, the higher home value on your follow-up appraisal will only help you.

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<h1>Multiple Appraisals for a Construction Loan? The Details an Owner Builder Needs to Know</h1><br />by cjesposito<br /><p>If you want a mortgage, you need a real estate appraisal. If you want to be an owner builder and need a construction loan, you will need two appraisals wrapped into one. An owner builder construction loan will require an appraisal prior to construction and one follow-up appraisal upon completion. Knowing the details of this system will help you get the construction loan you want.<br /><br />As an owner builder, you probably already know that your construction loan will require an appraisal that is completed prior to closing on the loan. But, did you also know that an owner builder construction loan will almost always require a quick, follow-up appraisal once your home is finished? If you understand the basics of this follow-up appraisal, you will be able to plan accordingly and set up your owner builder loan to your advantage. <br /><br />Let 's start with the first appraisal that is required for all owner builder loans. This first appraisal is known as a plans and specs appraisal, because the appraiser will base his valuation of your future home on the home plans and the material specifications. In other words, your appraisal will take your plans, go out to your land, and determine what the value of the home will be.<br /><br />Like any home and any loan, the value of your home for an owner builder project will be based on the recent sale prices of similar homes (on similar size land) in the immediate vicinity of your property. So, if you are building a home that is out of the ordinary for the area, you will have trouble getting a passable appraisal. But, that is a lesson for another day. For now, let 's focus on how the plans and specs appraisal works in conjunction with the follow-up appraisal when your home is completed. <br /><br />Because your owner builder construction appraisal is based on your plans and material specifications, you are therefore agreeing to use the loan money to build the house strictly in accordance with the blueprints that were used for the appraisal. For example, you may have an appraisal that estimates a value of $400,000, partly due to the stainless steel appliances and hardwood floors that your home plans specified. <br /><br />An owner builder lender is not going to allow you to change your mind and put in materials that are going to lower the value of the home. In other words, if your owner builder construction budget that you set up was tight on funds, don't make the mistake of trying to downgrade your materials to save money and build within your budget. If your home plans call for luxury finishings such as stainless steel appliances and hardwood flooring, then you better make sure your budget has enough money to install these items. <br /><br />The lender is not going to be very happy when you try to install carpeting and low-end appliances, because your follow-up appraisal is going to show that the value of the home is not as high as initially projected. The bank agreed to the owner builder loan based in large part on the appraised value. Therefore, you must do your part as the borrower to ensure you build as closely to the specifications in the initial appraisal as possible. <br /><br />But, what if the opposite situation happens? What if you have plenty of padding in your budget and you want to upgrade your flooring or your appliances or any other finishing material? As an owner builder, you have the freedom to do exactly this. You can always upgrade the finishing material items in your home as long as you meet two criteria: 1) you don't need extra funds from your owner builder construction loan, and 2) these upgraded materials will increase the value of the home.<br /><br />Within this revelation lies the secret to successfully setting up your owner builder loan. Understand that the lender wants the follow-up appraisal to be as high as possible, but that an overly inflated value on the initial plans and specs appraisal might force the lender to require a larger amount budgeted for your loan. And, this increased budget might push your loan beyond your qualifying limits. <br /><br />So, as the owner builder, you should take advantage of this knowledge. If you are going to save a ton of money during construction by cutting out the costs of the general contractor, then you might have the room to pad your budget. Be smart about it. If your initial plans and specs appraisal is going to be high enough for the loan, you may want to provide home plans with lower end materials. Just make sure you have enough padding in your budget to upgrade to the materials you really want. Then, once your home is completed with these nicer materials and well within your owner builder budget, the higher home value on your follow-up appraisal will only help you.</p> <br /><h2>About the Author</h2><p><a href="http://www.ownerbuilder101.com">Owner Builder 101</a> and Chris Esposito specialize in owner builder financing for people who want to build their own homes without paying the overhead costs of a general contractor. For details, please visit the Owner Builder 101 website at <a href="http://www.ownerbuilder101.com">www.OwnerBuilder101.com</a>, or call (877) 876-3688.</p> <br /><h3><a href="http://www.content4reprint.com/finance/mortgage/multiple-appraisals-for-a-construction-loan-the-details-an-owner-builder-needs-to-know.htm" title="Multiple Appraisals for a Construction Loan? The Details an Owner Builder Needs to Know">Article Source:</a> <a href="http://www.content4reprint.com" title="Free high quality articles">Content for Reprint</a></h3>