Conventional Loan Appraisal Requirements for New Construction

The Quick Read: A new-construction home financed with a conventional loan needs an appraisal, and it needs proof the home was finished the way the plans said. The appraiser sets a value, often “as completed,” from plans and comparable sales. Then someone verifies completion, either the appraiser or the builder and buyer, depending on the loan. Loan size follows the lesser of that value or the purchase price, so a low appraisal shrinks what the lender will finance.

What Does the Appraisal Have to Prove on a New Build?

The appraisal has to show that the home is worth at least what you are paying and that it will be finished to a standard the lender can rely on. The home is the collateral. The lender will not finance more than the collateral supports.

On a resale, the appraiser walks a finished house. On new construction, the house may not exist yet. The appraiser then works from plans and specifications, a survey or plot plan, and photos of the lot and street. The report gives an “as completed” value, meaning what the home should be worth when it is built as described.

Across the wholesale programs Lendmire places files with, the standard one-unit report is Form 1004, which is the full interior and exterior appraisal for single-family homes and PUD units. Form 1004D is the update-and-completion form that comes later. The industry is also moving to a redesigned report format, but the logic below stays the same.

How Is the Loan Underwritten, Step by Step?

Here is the sequence on a typical conventional new-construction purchase.

1. Structure. Decide the route. A completed or nearly finished spec home is bought like a resale, with an “as is” or “subject to completion” appraisal. A construction-to-permanent loan covers the build and then converts to a standard mortgage.

2. Documents to the appraiser. For a home not yet finished, the file needs the plans, specifications, any amendments and the contract. A survey or plot plan helps. So do current photos.

3. Appraisal. The appraiser picks comparable sales, adjusts for differences and reconciles to a value. The value is compared with your contract price.

4. Loan sizing. Leverage is based on the lesser of the appraised value or the purchase price. On a single-closing construction loan, the price is the lot plus the cost to build. These sizing rules come from the Fannie Mae construction-to-permanent product matrix.

5. Completion verification. Before the loan can be sold, someone confirms the home is finished.

6. Loan sale. Once completion is documented, the lender can deliver the loan to the agency. On a single-closing construction loan, that happens only after the build ends and the loan converts.

Programs are subject to lender guidelines and full file review. None of this is a commitment to lend.

What Leverage and Credit Limits Frame the File?

The envelope is the same one every conventional purchase uses. On a principal residence, leverage runs to 97% when at least one borrower is a first-time buyer on a fixed rate, and 95% otherwise. Mortgage insurance applies above 80% leverage. You can request cancellation at 80% of the original value, with good payment history, no subordinate liens and no decline in value, and the servicer must end it automatically at 78%. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.

On credit, the wholesale conventional programs start at a 620 decision score. The automated finding governs most files, with a total ratio ceiling of 50%. These are typical guidelines, and each lender and file is reviewed on its own.

Construction-to-permanent adds its own limits. Cash-out refinances are not eligible. The construction period can’t exceed 12 months in any single period or 18 months in total. The matrix also shows a 95% maximum, and the Eligibility Matrix governs the final number. For single-closing purchases, the guide allows a minimum borrower contribution waiver when leverage is 80% or less. A one-unit principal residence can also use gifts or grants for part of the borrower’s contribution.

Which Completion Option Applies?

The answer depends on which agency owns the loan.

Form 1004D and Form 442 are the same dual-purpose form. The appraiser inspects the home and certifies it was finished per the plans. Fannie Mae’s completion rules allow an on-site visit, a virtual inspection, digital photos or site video, but every completion package needs at least one visually verifiable exhibit.

If the seller can’t provide the required signed completion paperwork, the appraiser’s Form 442 is required. Form 442 carries photographs and is dated before the settlement date, with limited exceptions.

In practice, the attestation-style options keep a file simpler when the builder cooperates. When a builder drags on paperwork, the appraiser’s report is the fallback.

How Does Appraisal Age Affect a Long Build?

Appraisals go stale. A delayed closing is a common reason an old report becomes a problem.

On Fannie Mae loans, the property must be appraised within 12 months before the note date. If the effective date is more than 4 months but less than 12 months before the note date, the appraiser must do an update with an exterior inspection and a review of market data for any decline in value. Fannie Mae’s appraisal age rule applies whether the report was done as proposed or existing construction.

On Freddie Mac loans, an update is required, except for desktop appraisals, when the effective date is more than 120 days before the note date. It is reported on Form 442. If value hasn’t declined, no new appraisal is needed. If it has, a new one is required.

On a single-closing construction loan, Fannie Mae’s single-closing rules bar the sale of the loan until construction is complete and the loan has converted. A value problem found at completion can therefore force the lender to re-size the file before it can be delivered.

Where the General Rule Breaks

These are the named edge cases that cause the most friction.

No closed sales in a new subdivision. This is the hard one. The appraiser needs comparable sales, and a brand-new community may have none. The Selling Guide’s comparable sales section says to use sales from the same market area, including the subdivision or project, when possible. Sales from competing areas are allowed if the appraiser documents why. There are added requirements for new or recently converted condos, subdivisions and PUDs. The file may need more documentation, and the report can take more work.

Builder-created comps. Older guide language lists as a deficiency building a comparable by combining a vacant land sale with the contract price. In plain terms, the builder’s own price is not proof of value. Resales by individual homeowners tend to be better evidence than builder sales.

Newly built manufactured homes. If the home isn’t built or attached to the land yet, the appraisal may use plans and specifications or an existing model home. It needs a well-developed sales comparison approach supported by a cost approach.

Infill lots. Under Fannie Mae’s UAD 3.6 policy, an infill lot that can’t fit a garage, driveway or sidewalk is not required to have them. It is a niche point, but it prevents a false deficiency on tight urban lots.

Single-closing loans and loan sale. Fannie Mae won’t buy a single-closing construction loan until construction is complete and the loan has converted. Some lenders therefore hold these loans or offer fewer products.

Government loans. An older HUD letter says a completion report can’t replace the Compliance Inspection Report on new construction. Rules may have changed since, so use that only as a pointer. This article covers conventional loans.

What Happens If the Appraisal Comes In Low?

The loan is sized off the lesser of value or price, so a low appraisal cuts the amount the lender will finance. Think of a contract at a set price and an appraisal that lands under it. Leverage is measured against the lower number. You then cover the gap with cash, negotiate the price, or walk away if your contract allows.

The practical options:

• Ask the builder to adjust the price or add a concession. Builder incentives interact with the appraisal, so have the lender review any concession first.
• Ask the lender about a reconsideration of value. Send recent, comparable resales the appraiser may not have used. The outcome is uncertain.
• Bring more cash to closing.
• Reopen the contract and renegotiate if the terms allow.

Lendmire’s related piece How Much Cash a Low Appraisal Adds on a New Construction Conventional Loan works through the same math.

Worked Example: A Spec Home Under Construction

This is a labeled illustration, not market data. A buyer signs a contract on a home still being framed. The first appraisal is “subject to completion per plans and specifications.” The buyer plans a 95% purchase loan and the appraiser values the home at the contract price, so leverage holds at the contract price.

The build runs long. At closing, the appraisal’s effective date is past the agency’s update window. The appraiser does an update and certifies completion. Market data shows no decline, so no new appraisal is needed. Had the market dropped, the file would be re-sized at the new value.

The lesson: the schedule of the build is part of the appraisal file. Ask the builder for a realistic completion window before locking in a program.

Four Misconceptions That Cause Trouble

• “New construction doesn’t need an appraisal.” The standard appraisal chapter applies.
• “The builder’s price is the value.” Value comes from the appraiser’s comparables, not the price sheet.
• “Completion is a formality.” Both agencies require evidence the home was built to plan.
• “One appraisal covers the whole build.” Updates and, after a decline, new appraisals can be required.

Some individual lenders also add their own rules on top, such as requiring a full appraisal on every new-construction file. Those are overlays, not agency policy, and they vary by lender.

Your Rights on the Appraisal

Under the CFPB’s ECOA Valuations Rule, you get a free copy of the appraisal on a first-lien home loan. You receive it promptly after completion, ahead of closing, and you can waive the timing and take it at closing. The lender may still charge a reasonable fee for the appraisal itself.

Pre-Appraisal Checklist

• Signed contract and any amendments or change orders.
• Full plans and specifications.
• Survey or plot plan.
• Current photos of the lot and street if work hasn’t started.
• A written completion window from the builder.
• Builder willingness to sign an attestation or warranty of completion where the loan allows.

Gather these before the appraiser is ordered. Missing paperwork is the preventable cause of most delays on new-build files.

Key Terms Defined

As-completed value: The appraiser’s estimate of what the home will be worth once built to the plans.

Form 1004D: Fannie Mae’s appraisal update and completion report.

Construction-to-permanent loan: A single-closing loan that covers the build and converts to a standard mortgage afterward.

Comparable sales: Recent sales of similar homes the appraiser uses to support the value.

If you are buying a home and want to see whether a conventional loan fits your file, Lendmire can help you compare the options and what each one asks of the file. Details on conventional loan programs are on the site, and reaching out at 828-256-2183 starts the conversation.

About Lendmire

Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

For your own numbers, request a scenario review with Lendmire.

References

1. Fannie Mae construction-to-permanent product matrix

2. Fannie Mae B4-1.2-05, completion verification

3. Fannie Mae B4-1.2-04, appraisal age

4. Freddie Mac

5. Fannie Mae B5-3.1-02, single-closing construction-to-permanent

6. Fannie Mae B4-1.3-08, comparable sales

7. HUD

8. CFPB ECOA Valuations Rule, consumer summary