In a traditional home purchase transaction, a lender requests an appraisal to determine a fair market value of the home. The appraiser provides a professional estimate of the value of the property and land at the time of the transaction. In the lingo of mortgage and real estate professionals, this type of appraisal is often called an “as-is appraisal.”
With a 203(k) renovation loan, you are taking out a loan to finance both the cost of buying the home and the renovation costs – all in one loan. The total amount of the 203K loan is determined before the repairs or renovations are made. Lenders need a professional estimate of what the fair market value of the home will be after repairs are completed. They request what is called an “as-repaired appraisal.”
To give a general picture of how the as-repaired appraisal fits into the process, here’s a very basic look at the steps involved in a standard 203K loan, sometimes called a Consultant K* loan:
- The borrower selects a property, a lender, a 203(k) consultant and a general contractor.
- The lender pre-qualifies or pre-approves the borrower, and determines that the property is eligible for a 203K loan.
- Working with the consultant and the contractor, the borrower submits a document that specifies all repairs.
- The lender requests an appraisal. The appraiser reviews the all of the documents, as well as the actual property, and provides an “as-repaired appraisal” – an estimate of the fair market value of the home after it has been repaired.
- The lender then calculates the loan amount, including the maximum renovation amount and the maximum mortgage amount, and proceeds to underwrite the loan.
The process and steps involved are a little different when borrowers use a Limited 203(k) loan, which is often referred to as a Limited K:
- The borrower chooses a property, a lender and a general contractor.
- The lender orders an appraisal, and the appraiser uses documents from the contractor to arrive at an estimate of the fair market value of the home after repairs are completed.
- The lender calculates the loan amount, and proceeds to underwrite the loan.
To some borrowers, this may all sound a little too complicated. But the process can go quite smoothly, especially if you work with professionals who see themselves as members of a team, eager to help you buy and renovate a home. Lenders with lots of expertise in renovation lending can be a big help. They also have experience working closely with 203K consultants, who play a huge role in keeping your purchase transaction and the renovations on track.
HomeBridge is proud to be the nation’s largest 203K lenders. Give us a call. We’re eager to talk about 203(k) loans and other home financing options that help you meet your goals.
*Consultant K required if: rehab costs exceed $35; structural work, landscaping, or if required by the Underwriter