USDA/Rural Development question

[metapp]

I know with FHA new construction it has to be more than 90% complete or you have to have plans and specs. Since USDA requires an FHA level inspection, does the 90% complete rule still apply? I have looked online and can't seem to find what I am looking for.

 

[incognito]

I not familiar with the FHA "90%" rule you mention, but I think USPAP will override, in that even if it is 95% or more complete, you must have enough data, be it plans, specifications, contract, selection sheets, builders verbal but documented representation, or an identical model, etc., to complete the appraisal.

Even VA is flexible, and allows the completion of the appraisal w/o plans and specifications once the property reaches the "buyer preference stage". VA does not place a "% complete" threshold on what this stage of development is, but DOES require that you utilize a credible source for the information on how the house will be completed, and document that source.

Unless you are certain about the FHA 90% rule you mention, I see no reason to require plans and specifications, as long as you have a good source for what the finishes in that last 10% will be.

Keep in mind, however, that FHA DOES require plans and specifications, even for a 100% complete but never occupied home, depending on whether the builder provides certain warranties and is an FHA approved/certified builder. It may not be your job to obtain them, and you may not actually need to have or use them to complete the appraisal, but ultimately they will be needed for many FHA loans packages on new construction.

 

[metapp]

I not familiar with the FHA "90%" rule you mention, but I think USPAP will override, in that even if it is 95% or more complete, you must have enough data, be it plans, specifications, contract, selection sheets, builders verbal but documented representation, or an identical model, etc., to complete the appraisal.

Even VA is flexible, and allows the completion of the appraisal w/o plans and specifications once the property reaches the "buyer preference stage". VA does not place a "% complete" threshold on what this stage of development is, but DOES require that you utilize a credible source for the information on how the house will be completed, and document that source.

Unless you are certain about the FHA 90% rule you mention, I see no reason to require plans and specifications, as long as you have a good source for what the finishes in that last 10% will be.

Keep in mind, however, that FHA DOES require plans and specifications, even for a 100% complete but never occupied home, depending on whether the builder provides certain warranties and is an FHA approved/certified builder. It may not be your job to obtain them, and you may not actually need to have or use them to complete the appraisal, but ultimately they will be needed for many FHA loans packages on new construction.

If a property is less than 90% complete it has to be considered proposed construction and as you state there are other things you will need from the builder including the plans and specs. For a plan based development the builder does not want to provide all of this. Thanks for the response.

 

[AlwaysLearning]

If a property is less than 90% complete it has to be considered proposed construction .

Hah?

I would call it under construction.

It is a proposed construction when construction has not started

 

[PropertyEconomics]

If the construction is incomeplete it remains proposed and under construction. The finishes are proposed while the rest of the home is under construction. I would at the very least receive a set of specs to determine the finishes and would most probably also seek a set of plans.

Is this for a guaranteed loan (is there a lender involved) or is it a direct loan from USDA (no lender involved)? If construction began prior to the lending application you could have other issues and the lender should be informed. Placing a mortgage after construction has begun is often difficult because of the potential there may be liens which could make the mortgage essentially a junior lien position.

I would definately contact the lender or USDA and explain what you have and seek advice as to how to continue.

Interesting situation for a USDA loan.

 

[AlwaysLearning]

Maybe the following will alleviate your confusion

"B. Construction Definitions

Click here for a complete list of items required for high/low ratio loans found in HUD Handbook 4145.1 Appendix 11.

Proposed Construction are properties approved for mortgage insurance prior to the beginning of construction, defined as the first placement of concrete or other permanent materials. This means that the DE Statement of Appraised Value or Early Start letter has been issued by the DE Underwriter for the property prior to the first placement of concrete or other permanent materials.

Under Construction are those properties in which the first placement of concrete or other permanent materials has begun, but construction is not yet 100% complete.

Existing Construction properties that are 100% complete at the time of appraisal. "Complete" means everything is complete including the installation of buyer preferences (flooring, appliances, etc.), utilities are on and fully functioning and all site improvements completed at the time of appraisal (Ready for Occupancy). If no repair or correction conditions are made by the appraiser, the appraisal serves as the final inspection as per HUD Handbook 4145.1 Paragraph 6-3-A(3).

C. General Requirements

1. Appraisals/Appraisers: The appraiser is required to obtain and retain a copy of the builder’s plans and specification or other document sufficient to identify the extent and character of the proposed improvements (Pursuant to USPAP Standards Rule 1-2). The appraiser may obtain a copy of these documents from the builder or the Lender.

The appraiser must receive/obtain:

A Completed Builder’s Certification (Form HUD-92541) signed and dated no more than 30 days prior to the date the appraisal was ordered before performing the appraisal on proposed, under construction or less than one year old properties. Appraisers must review Item 1 on the form and note in the Appraisal Report any discrepancies between the information in Item 1 and the actual conditions observed on site. The lender is responsible to address any yes answer in Item 1.

All reports and available information (i.e. sales agreement, title report, environmental and soils reports or studies and inspection reports).

In those cases involving new construction, that is 90% or more complete, including existing less than one year old, the appraiser does not need the plans and specs to perform an appraisal."

 

[metapp]

Hah?

I would call it under construction.

It is a proposed construction when construction has not started

Yeah, I should have said under construction versus proposed. Not really thinking before I type these days. Thanks for the input.

 

[AlwaysLearning]

If the construction is incomeplete it remains proposed and under construction.

Would you share the source of the above construction definition?

 

[AlwaysLearning]

Yeah, I should have said under construction versus proposed. Not really thinking before I type these days. Thanks for the input.

:icon_idea: You may want to bookmark this link
http://portal.HUD.gov/hudportal/HUD?src=/groups/appraisers

 

[metapp]

:icon_idea: You may want to bookmark this link
http://portal.HUD.gov/hudportal/HUD?src=/groups/appraisers

Thanks...I have that one in my list already. The original question was geared more towards how USDA/Rural Development compares to FHA.