Most lenders allow space built without permits, as long as it was constructed properly and there are no health or safety issues, such as the presence of a stove.
Appraisers can tell when there is un-permitted space either by appearance (garage conversion) or when the measured gross living area does not match the county records.
If appraisers give significant value (equal to permitted space) to un-permitted space, underwriters will either call for permits or new comps with un-permitted areas that are very similar to the subject. Both conditions can be deal-killers.
The key is for the appraiser to give no value to the un-permitted space, and to employ only comps with permitted gross living areas that are close in size to the subject’s gross living area.
Sometimes Realtors will tell appraisers that space is permitted when it isn’t, and it only opens up cans of worms. It’s always best to be upfront with appraisers about un-permitted space.
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