How do Appraisals Work on Building a New Home?

CrossfoxxMarch 8, 2014


My wife and I are building a home and want to borrow $140,000 to build - the appraisal on the blue prints is $153,000. The bank says we need a down payment of $30,600 and they will loan us $122,400.

Based on what I know, this does not sound right.

My understanding is then we would only need $17,600 for a down payment, and the bank is wrong. We still only need $140,000 to build, but the bank says we have to make up the difference to the appraised value. ($153,000 - $122,400 = $30,600)

The bank is telling us that had we received a lower appraisal, closer to $140,000 that we would have had a lower down payment.

I've never heard of it working this way....any information on how this works would be appreciated.



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Sophie Wheeler

The bank is always right. It's their money.

Do you have a healthy contingency fund factored in also? You're going to need one. Especially with that lowball price. Everything you want will be an upgrade.

    Bookmark   March 8, 2014 at 9:20AM
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For construction loans, you need 20% Think how much riskier these loans are for the bank. They could be at 122K before any of the interior finishes are even started just from a few materials/labor items increasing during the construction period. That leaves them with a house that they can't sell without loosing money.

How did you come up with $17,600? That is about 9% of the appraised value.

    Bookmark   March 8, 2014 at 9:55AM
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The bank believes the house will end up costing you $153,000 to build. They require 20% for a down payment, which is how they came up with the $30,600. ($30,600 is 20% of $153,000)

In order to borrow $140,000 you would need to be building a house that would cost $175,000 and you would need a down payment of $35,000.

How much did you think the house was going to cost to build? How much do you have for a down payment?

    Bookmark   March 8, 2014 at 1:07PM
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