A Future Reappraisal Requirement is common in construction and renovation loans. Lenders use it to verify that the improvements promised in the loan application are completed as planned and to confirm the property’s increased value before releasing the final loan funds. This protects the lender’s investment by ensuring the property supports the loan amount.
Here’s how it works:
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Initial ‘Subject-To’ Appraisal: Before loan approval, an appraiser estimates the property’s value assuming the proposed construction or renovation is complete. This “as-completed” appraisal considers plans, materials, and project scope.
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Construction or Renovation Phase: The loan funds are released in stages, called “draws,” tied to project milestones.
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Future Reappraisal: After finishing the project, the lender orders a final appraisal update using forms such as the Appraisal Update and/or Completion Report (Form 1004D). The appraiser inspects to confirm the work matches the original plans and that the property value aligns with the initial estimate.
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Final Loan Disbursement: If the appraisal confirms completion and value, the remaining loan funds are released.
This requirement typically applies to:
- Construction Loans: To ensure the home is built as planned and supports the loan amount. See Construction Loan Closeout and Construction Phase Financing for details.
- Renovation Loans: Like FHA 203(k) or HomeStyle Renovation Loans, where the loan covers both purchase and renovation. The reappraisal confirms renovations were completed properly.
- Some HELOCs: When funds will be used for a significant value-adding project, confirming completion before full draw.
Avoiding Common Issues
- Don’t Change Plans Without Notice: Altering original scope or using cheaper materials can reduce value. Always notify and seek lender approval for changes.
- Maintain Quality: Poor workmanship can lower appraised value.
- Complete Fully Before Reappraisal: Incomplete work may delay final funding and incur additional inspection fees.
FAQs
What if the reappraisal value is lower than expected? Lenders may withhold final funds. Borrowers might need to pay the difference or appeal the appraisal.
Who pays for the reappraisal? Typically, the borrower pays, often included in closing costs.
Is this a full new appraisal? No, it’s generally an appraisal update or inspection, not a full appraisal.
For more on renovation loan types and requirements, see our articles on Home Renovation Financing and FHA 203(k) Streamline Loan.
For authoritative guidance, visit the Consumer Financial Protection Bureau’s overview of appraisals at CFPB.gov.
