Is your heart set on financing and buying a new construction home? Well, congratulations are in order! But before you sign the deal, there are a few things you should know about new construction home appraisals.
Your lender will likely require an appraisal of your new construction home before approving your mortgage to ensure that the house is worth the amount of the loan. But an appraisal of new construction can be a bit confusing since comparable homes to compare them against may not exist. Keep reading to learn more about new construction home appraisals!
How are Appraisals Different for Newly Construction Homes and Existing Ones?
While existing homes are appraised using the sales method, appraisers use the cost method to value new construction homes. The cost method assesses the value of the land and the actual cost to build a home. The appraiser will also look at the following:
- A blueprint of the house
- Materials used
- Home features – for instance, the number of doors, windows, bathrooms, bedrooms, and garage spaces
Using that data and market research, the appraiser will evaluate the Loan to Value Ratio (LTV) that your lender uses to calculate how much risk is involved in offering a loan for the new construction.
On the other hand, appraisals for existing homes involve comparing recent home prices in the neighborhood that have similar square footage, condition, features, and amenities.
How Long Does an Appraisal Take for New Construction?
A new construction home appraisal typically takes a few days, but it may take a couple of weeks if the home builders are slow to submit their plans and budget to the appraiser. Moreover, if the home is in a remote location, it may also increase the amount of time necessary to complete the report.
New Construction Home Appraisals: Uniform Residential Appraisal Report
Appraisers use the Fannie Mae Uniform Residential Appraisal Report, form 1004, to produce credible appraisals on new construction homes. They combine the URAR, the builder’s documents, and the cost of land to derive home values. Once the appraiser completes your new home’s appraisal, they’ll send it to you and your lender.