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Updated on
4/26/2024

Understanding Appraisal Property Condition Ratings for Real Estate Loans

Written by: 
Landa Team

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Appraisal Condition Ratings Explained

C1: New Construction

  • Definition: Properties recently constructed and not previously occupied, featuring no physical depreciation.
  • Loan Type: Typically suited for Ground Up Construction loans.
  • Details: Components are new, and the structure must be on a completely new foundation. Recycled materials must be rehabilitated to like-new condition.

C2: No Deferred Maintenance

  • Definition: Properties with no deferred maintenance and minimal to no physical depreciation.
  • Loan Type: Ideal for DSCR loans.
  • Details: All components are new or have been recently repaired or replaced, ensuring they meet current standards.

C3: Limited Deferred Maintenance

  • Definition: Properties that are well-maintained with some wear and tear.
  • Loan Type: Suitable for DSCR loans.
  • Details: Not every major component may be updated, but the property remains well-maintained and functional.

C4: Minor Deferred Maintenance

  • Definition: Properties with minor deferred maintenance and some wear and tear.
  • Loan Type: Applicable for DSCR loans.
  • Details: Requires minimal repairs; major building components are maintained and function adequately.

C5: Significant Deferred Maintenance

  • Definition: Properties that are obviously maintained less rigorously and need significant repairs.
  • Loan Type: Typically requires a Bridge loan.
  • Details: Functional utility and livability are reduced, but the property is still usable.

C6: Severe Deferred Maintenance

  • Definition: Properties with substantial damage affecting safety, soundness, or structural integrity.
  • Loan Type: Necessitates a Bridge loan.
  • Details: Requires substantial repairs and rehabilitation; major components may need replacement.

Understanding the Impact of These Ratings:The Single Family Uniform Appraisal Dataset (UAD) by Fannie Mae provides these guidelines to help appraisers assess property conditions accurately. Real estate investors must understand these ratings, especially when aiming for a DSCR loan (rental loan). Properties not meeting specific conditions might necessitate a bridge loan for purchase and rehabilitation before refinancing into a DSCR rental loan.

By understanding each condition rating, you can better plan your investment strategy and financing approach, ensuring that you choose the right type of loan and avoid unexpected complications in the lending process.

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