Construction & Renovation
How Construction Loan Appraisals Work
How an appraiser values a home that has not been built, what plans and specs must include, what happens if value comes in low, and the final inspection at completion.
Updated 2026-08-21| Applies to: Anyone building, and agents advising clients on new construction contracts.
The short answer
A construction appraisal is completed subject to plans and specifications. The appraiser reviews your full plan set, the specification list and the contract, then compares the proposed home to recently completed comparable homes in the area. At completion, a final inspection confirms the home was built as described before the loan converts or funds finally.
What the appraiser needs
- Complete architectural plans with square footage and elevations
- A detailed specification sheet, including allowances
- The signed construction contract and budget
- Lot information, including any site improvements included in the price
Why value can come in below cost
- Custom features that cost a great deal but add limited market value
- A lot premium the market does not support
- Few recent comparable new builds in the immediate area
- Building well above the price ceiling of the surrounding neighborhood
Options when the value is short
- 1.Submit a reconsideration of value with better comparable sales, if legitimate ones exist
- 2.Bring additional cash to reduce the loan amount
- 3.Reduce scope or substitute finishes to lower total cost
- 4.Reconsider the lot or the plan
The final inspection
At completion the appraiser returns to confirm the home matches the plans and specs used for the original valuation. Substitutions made through change orders should be documented, or the final report can raise questions that delay conversion.
General education, not a commitment to lend. Construction, land and renovation program terms, loan to value limits, draw procedures and builder requirements vary by lender, property and current guidelines, and they change over time. Manny Oloyede | Mortgage Broker | NMLS 1824463 | Ultimate Mortgage Brokers LLC. Equal Housing Opportunity.
Common mistakes to avoid
- Making finish substitutions without documenting them
- Overbuilding for the neighborhood and expecting the appraisal to follow cost
- Treating the appraisal as a formality that happens after construction starts
Frequently Asked Questions
People also ask
Do I make payments during construction?
On most one time close programs you pay interest only on the funds drawn to date, then the full payment begins after conversion.
Read: One Time Close Construction LoansDo I close twice?
Not with a one time close construction to permanent loan. You close once, and the loan converts at completion. A two time close structure has a separate construction loan and a separate permanent refinance, with two sets of closing costs.
Read: Construction to Permanent Loans ExplainedWhich is cheaper overall?
Usually the one time close, because you pay closing costs and title work once instead of twice. The exact difference depends on loan size and the fees on each structure.
Read: One Time Close vs Two Time Close Construction LoansHow long does a draw take to fund?
Commonly a few business days from request to funding once the inspection is scheduled and lien waivers are in. Timelines are not guaranteed and depend on the inspector and title company.
Read: How Construction Loan Draws WorkHow much should my contingency be?
Many builders and lenders plan a contingency in the range of five to ten percent of hard costs. Larger custom projects and older lots with unknown site conditions justify the higher end.
Read: How to Finance a Custom Home BuildCan I use land equity as my down payment?
Often yes. Land owned free and clear commonly counts toward equity in the construction project, subject to program rules and the appraised lot value.
Read: Land Loans vs Construction LoansTerms used in this guide
- Appraisal
- An independent opinion of a property's market value, ordered by the lender and based largely on comparable sales.
- New Construction
- A home being built or recently completed, financed either with a construction loan or an end loan once the home is finished.
- Certificate of Occupancy
- The local government document confirming a newly built or renovated home meets code and is legal to occupy.
- Reconsideration of Value
- A formal, evidence based request asking the appraiser to review specific comparable sales or factual errors in the appraisal report.
Written by
Manny Oloyede, Mortgage Broker
NMLS #1824463 | Ultimate Mortgage Brokers LLC NMLS #2619461 | Licensed in OH | KY | NC | PA | SC | TN | TX
I have worked in mortgage lending since 2018 out of the Akron / Cuyahoga Falls Branch, helping buyers, homeowners and investors across Northeast Ohio and every state where I am licensed. These guides reflect the questions I answer most often, written the way I would explain them on a call.
Keep reading
Construction Loan Down Payment and Loan to Value
How construction lenders set the down payment using loan to value and loan to cost, how owned land counts as equity, and how occupancy changes the limits.
Construction & RenovationConstruction to Permanent Loans Explained
How a construction to permanent loan works: the build phase, interest only draw payments, inspections and the conversion to a standard mortgage at completion.
Construction & RenovationCost Overruns and Change Orders on a Construction Loan
How change orders are approved on a construction loan, who pays for overages, how contingency reserves work and what to do when the budget runs past the loan.
Construction & RenovationHow to Finance a Custom Home Build
A step by step path to financing a custom home: budget, lot, builder selection, plans and specs, appraisal, closing and the draw phase through completion.
Questions about your own numbers?
Send over your goal, income type and timeline and you'll get a straight answer on what is realistic.