How do Appraisals Work on Building a New Home?

10 years ago

Hello

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.

Thanks

Steve

Sort by:Oldest

Comments (3)

User
10 years ago
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.
nostalgicfarm
10 years ago
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.
Related Professionals
Hockessin Architects & Building Designers · White Oak Architects & Building Designers · Schofield Barracks Design-Build Firms · Casa de Oro-Mount Helix Home Builders · Kaysville Home Builders · Pine Bluff Home Builders · South Farmingdale Home Builders · Alhambra General Contractors · Conneaut General Contractors · Havelock General Contractors · Jacksonville General Contractors · Mililani Town General Contractors · Mountain View General Contractors · Rolla General Contractors · San Elizario General Contractors
dekeoboe
10 years ago
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?