FHA Loan vs Conventional Loan Appraisal on New Construction

The Quick Read: On new construction, both loan types require an appraisal that supports the contract price and a finished home that is documented as complete. The difference is the paperwork layer. FHA adds builder certifications, HUD forms, and its own property standards. Conventional loans sold to Fannie Mae lean on the standard appraisal forms, a safety-and-soundness review, and the lender’s own completion check. Neither path skips the appraisal because the home is new.

The honest answer on who each option is for comes down to the file, not the loan label. FHA suits a buyer who wants a low minimum investment and flexible credit and ratios, and who has a builder willing to handle HUD paperwork. A conventional loan tends to suit a buyer with stronger credit and more cash, or a builder who doesn’t work with FHA. This article covers the Fannie Mae-style conforming path.

On new-construction files, the appraisal itself is often the smaller hurdle. Missing builder paperwork and unfinished items are common reasons a file stalls, and the sections below show where each one shows up.

Side-by-Side

Every figure above is a program guideline, subject to lender guidelines and full file review. Nothing here is a commitment to lend.

What Counts as “New Construction”?

HUD splits it into three stages. According to the HUD Handbook 4000.1 Glossary, new construction means Proposed Construction, Under Construction, or Existing Less than One Year.

• Proposed Construction: no concrete or permanent material has been placed yet. Digging footings doesn’t count.
• Under Construction: from the first permanent material through 100% completion, before a Certificate of Occupancy.
• Existing Less than One Year: fully complete, finished within the past year, and never occupied.

A home finished within a year but already lived in is not new construction under HUD’s definition. That cutoff catches buyers off guard.

Conventional lenders think in simpler terms. The appraisal can be based on plans and specifications or on a model home. Either way, the finished property has to be complete before the loan is sold.

How the FHA Appraisal Works on a New Build

FHA new-construction files carry more moving parts. Buyers considering FHA loan programs should know these before signing a builder contract.

The appraiser. An FHA Roster Appraiser gives HUD an opinion of value. The appraiser also observes the home’s physical condition. That observation covers readily observable conditions only. It is not a home inspection, so an independent inspection is still smart.

The builder certification. Per HUD’s guidance on new-construction documents, the lender must give the appraiser a fully executed form HUD-92541, the Builder’s Certification of Plans, Specifications, and Site. It must be signed and dated within 30 days before the appraisal is ordered. A builder who isn’t familiar with this form can stall the file.

Stage-based exhibits. For a home 90% complete or less, the lender supplies a floor plan, plot plan, and exhibits showing size and level of finish. For a home more than 90% but under 100% complete, the lender supplies a list of components still to be installed.

Subject-to wording. HUD’s reporting guide says the appraisal is made “subject to completion per plans and specifications” for proposed homes and for homes under construction less than 90% done. Nearly finished homes with only minor items left don’t need plans and specifications.

The warranty. HUD kept the requirement that builder and buyer sign the Warranty of Completion (HUD-92544). It dropped the rule requiring a 10-year protection plan, per the Federal Register. Many buyers still think FHA demands a 10-year warranty. It no longer does.

Inspections. Evidence of required inspections is part of the file, such as a Certificate of Occupancy or compliance inspections. Exact mechanics change, so confirm them against the current HUD Handbook 4000.1.

How the Conventional Appraisal Works on a New Build

The conventional side is lighter on forms but not on standards. Fannie Mae requires its standard appraisal forms. The report must flag physical deficiencies that affect safety, soundness, or structural integrity. If it finds any, the home is appraised “subject to” specific repairs, per the Fannie Mae Selling Guide.

Completion is the second gate. The lender must verify completion before the loan is sold to Fannie Mae, per the Selling Guide’s completion requirements. Unfinished items are cured through that verification step.

Fannie also sets appraisal age rules. The property must be appraised within 12 months before the note date, with an update inside four months, per the Selling Guide’s age requirements. That window applies whether the home was appraised as proposed or existing. A delayed build can push a buyer past it.

FHA has its own validity period. HUD’s 2023 handbook update set it at 180 days from the effective date.

When FHA Is the Better Fit

FHA tends to fit when:

• Cash is tight. The 3.5% minimum investment at a 580 decision score keeps the entry point low. The upfront premium is 1.75%, financed, and the annual premium runs between 0.15% and 0.75% of the balance depending on term, amount, and LTV.
• Credit or ratios are imperfect. The base ratios are 31/43. Documented compensating factors can reach 40/50 at the top tier, and the automated finding governs most files.
• The builder is HUD-experienced. A builder who routinely produces HUD-92541 and HUD-92544 makes the FHA path smooth.
• A co-borrower helps. A non-occupant co-borrower is allowed, and seller contributions can reach 6% of the price.
• It’s your primary home. FHA is owner-occupied only, one to four units. County loan limits apply and change yearly.

The tradeoff: more paperwork, a mortgage insurance cost that can last the full term of the loan, and a stricter property standard. A builder who has never done an FHA file can slow things down, or may refuse the loan type.

When Conventional Is the Better Fit

Conventional often fits when:

• Credit and savings are strong. Buyers with solid scores and more down can see mortgage insurance that is cheaper or removable.
• The builder avoids HUD forms. Some builders don’t want the FHA certifications. A conventional loan removes that friction.
• You want occupancy flexibility. Conventional loans also cover second homes. Occupancy decides the leverage, so that’s a different loan conversation.
• A single-close construction loan is the plan. Fannie supports single-closing and two-closing structures. In a single close, the construction loan converts to permanent financing, and the loan is eligible for delivery only after construction is complete. Attached condo and co-op units are not eligible.

The tradeoff: higher credit and down payment expectations, and lender overlays that vary from one lender to the next.

What Happens If the Appraisal Comes in Low?

On either path, a low appraisal limits the loan amount. The loan is based on the appraised value, not just the contract price. A buyer then has a few options:

1. Ask the builder to adjust the price.

2. Bring more cash to cover the gap.

3. Request a review with additional comparable sales.

4. Walk away, if the contract allows.

New-construction comps can be thin. Upgrades and lot premiums may not appraise dollar for dollar. Ask the builder early how incentives and concessions interact with the contract price and the appraisal.

A worked example, in plain terms. A buyer signs a contract on a home that is 60% built. The appraisal comes back “subject to completion per plans and specifications” with a value that matches the price. The FHA lender needs the builder’s HUD-92541 and, at the end, completion documentation. A conventional lender would instead need the home finished, with completion verified. In both cases, the loan funds only after the unfinished items are done and documented.

Common Misconceptions

• “New homes pass automatically.” Not so. They can still fail on value, missing paperwork, or unfinished items.
• “The appraiser is the home inspector.” HUD says the observation is limited to readily observable conditions. Hire your own inspector.
• “The appraisal belongs to the lender.” Under the ECOA Valuations Rule, lenders must give applicants a free copy of the appraisal and notify them of that right, per the CFPB. Read it, especially any “subject to” conditions.
• “A waiver covers new construction.” Fannie has appraisal waiver options, but eligibility depends on the specific loan and property. Ask the lender whether a waiver could apply to a new build.

Key Terms Defined

Subject to completion: An appraisal condition saying the value assumes the home will be finished as planned.

HUD-92541: The builder’s certification of plans, specifications, and site, required on FHA new construction.

HUD-92544: The Warranty of Completion that the builder and buyer sign on FHA new construction.

Early Start Letter: The document a lender issues when a builder asks to begin construction before the appraisal is done.

Roster Appraiser: An appraiser approved to complete FHA appraisals.

A Balanced Verdict

Neither appraisal is easier across the board. FHA asks more of the builder and the property, and gives more room on credit, ratios, and cash. Conventional asks less paperwork but more of the borrower’s file. The better choice often comes down to two questions: does your builder handle HUD paperwork, and does your credit and savings picture support a conventional loan?

If the home needs a repair fix before closing, Lendmire’s piece Can a Seller Fix an FHA Appraisal Problem on New Construction? walks through the options.

If you are buying a home and want to see whether an FHA loan fits your file, Lendmire can help you compare the options and what each one asks of the file. You can request a scenario review.

About Lendmire

As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and home buyers in 16 states with FHA, VA, conventional and jumbo purchase and refinance loans arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. HUD Handbook 4000.1 Glossary

2. HUD FHA Answers: new construction documents at assignment

3. Federal Register: Streamlining Warranty Requirements

4. Fannie Mae Selling Guide

5. Fannie Mae Selling Guide B4-1.2-05

6. Fannie Mae Selling Guide B4-1.2-04

7. CFPB ECOA Valuations Factsheet