FHA 203k Appraisal Process

Nearly all lenders require that both the borrower and the property qualify for the mortgage, and a property’s value is established through an appraisal.

The lender must be certain it can recover the investment if a borrower defaults on the loan. Lenders rely on a real estate appraisal to demonstrate a property’s current, “as is” market value.

This value is used to support the purchase price or determine the equity held by a current homeowner. Final loan approval will depend in part on a satisfactory appraisal.

Your lender will require an appraisal on the home you purchase or refinance using an FHA 203k loan.

The critical difference between a traditional loan appraisal and an FHA 203k is that the 203k appraisal is based on the projected value of the home after repairs are complete. This means the 203k appraisal reflects an estimation of how much the property will be worth after the renovation.

A traditional appraisal is based on a property’s current value in the real estate marketplace.

This is another important reason why the scope of work established by your HUD 203k Consultant and the contractor’s subsequent bids are critical.

Detailed contractor bids are an essential element of the appraisal process for an FHA 203k loan. The 203k appraisal is based on the value of the property once the renovations are finished. The appraiser will consider the scope of the work and use it to determine an “after repair” value, based on the sales price of comparables in the area that have similar upgrades.

Once the bids and a final, detailed list of proposed improvements are available, an experienced appraiser can evaluate the scope of work and compare the estimated value of the completed property to recently-sold comparable sales nearby.

Remember, the FHA 203k allows a potential homebuyer to borrow up to 110% of the “after repair” value of the home.