The Home Buyer's Korner

Information presented should be used for educational purposes only.

February 16th, 2017

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FHA 203K and “As Is” & After Repair Value

An appraisal conducted by an approved FHA 203k appraiser is needed to underwrite both the standard and streamline FHA 203K Home Renovation Loan programs. It’s primary objective is to establish the value of a subject property, based on its existing condition, local market conditions, and bids provided either vendor(s) and/or the general contractor(s), along with a detailed work write-ups performed by the HUD Certified Consultant, if applicable, as well as any optional feasibility study perform on the unit being appraised.

The loan amount is determined by either the appraised value or the lesser sale prices plus renovation cost. The maximum loan amount can range anywhere from 96.5 percent of the total cost or appraised value up to 110 percent of the “after improved” value X 96.5 percent, or less the allowable downpayment for a HUD REO property, not to exceed the county maximum loan limits set by HUD.

For most common purchasing with home financing, the lender requires only an “As Is” value. In such reports, the appraiser estimates the home value based on the market’s prevailing condition. The FHA 203K appraisal is different, as it involves the calculation of the “After Repair” value.

For a refinance transaction, the FHA appraisal requirements are slightly different. As there is no contract involved, the present value of such properties is determined using either the outstanding loan amount or the “as is” appraisal value. When both values are available, the lesser one is chosen for setting the loan amount.

The FHA 203k appraisal requirements are accommodative of many renovation loan scenarios that fall between the Streamline and Standard programs. Both the “as is” and “after repair” values can be indicated in a single appraisal report. The proposed improvements and renovation work is considered when arriving at the “after improvement” value. The final call regarding a single or double appraisal is taken by lender.

A HUD property can be purchased and renovated using a 203k loan. An appraisal report is generally not required by the lender to determine the “as is” value. However, many scenarios exist in the home purchasing process and discretion for an appraisal or not is left to the lender.

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