5.12 Cost Estimating for Lenders

A. Evaluating the estimates of construction cost prepared by the Borrower, Project Architect, General Contractor, Needs Assessor, and/or Construction Analyst is a critical element of the Lender’s underwriting task. It is the Lender’s responsibility to ensure that the Borrower and third-party professionals have developed and described costs in accordance with Chapter 5. For new construction and substantial rehabilitation projects under Sections 220, 221(d)(4), and 241(a) supplemental loans, replacement cost is one of the criteria used to determine the insured mortgage amount. In value-based programs, Section 231 and Section 223(f), replacement cost is a significant consideration in valuation, (except for properties 10 or more years old). Cost estimating consists of estimates of the construction costs for proposed improvements and/or repair and alteration costs for existing improvements.