Financing Our Design
Our lot is a walkout and our home design places half the total square footage at grade level meaning half the house is a basement. While this is not at all unusual in our area, it had been our desire from the beginning to build basement-free, i.e. slab on grade, and the idea of a walkout lot presented us with some points of compromise on design.
I've said before that I felt strongly that the kitchen and living room having continuity with the outdoors. I like to be able to blur the line between inside and outside as much as Minnesota's climate allows and this means having immediate access to yard and garden. The most sensible way to to accommodate this and still preserve the view and southern exposure on the walkout lot we bought was to place the kitchen and living room at grade level, or technically, in the basement. Normally I would consider this undesirable but in the case of the lot we bought, the topography allowed this “basement” to be full floor to ceiling daylight on three full sides which helped us retain the essential elements of our design without actually building slab-on-grade. We could happily place kitchen, bedroom and living room at grade level without feeling like we're spending our time living in a basement. It seemed like a logical and obvious decision, but in reality it raised several issues that were unaware existed and had the potential to change the character of our project.
Our design process was happening concurrently with our research of financing options and investigating the construction loan process. During these forays, several “professionals” and construction loan salespeople informed us that we'd never be able to finance a home with the design I had outlined for a number of reasons. As it turns out, this is apparently just another example of peoples' inclination to fixate on the negative and we're fortunate that we didn't automatically accept this as fact because that would have put an end to our project or forced us to settle on an alternate design.
The first and biggest “problem” that was brought to our attention was with the appraisal value of our proposed home. Part of the construction loan approval process is having your plans appraised to verify for the bank that you are planning to build what will become for them a reasonably sound investment. As I said, half our square footage is considered basement and in our case this “basement” contains the core functional elements of a home...the kitchen, living room and master bed and bath. From an appraisal standpoint, anything below grade is not factored in when calculating value for loan purposes, even if the intent and plan is to fully finish the space. What this boils down to is that in the eyes of an appraiser, our cost per square foot equals twice what we're actually spending, since he's only interested in the square footage of the upper level. To him, we're building a three bedroom, one bathroom house because only the rooms on the upper level count. The concession here was that we designed all these “bedrooms” to meet code for egress so that they could be called bedrooms even though this is not our intended use of the space. It could also be said that we're building a house without a kitchen, and this is where things got a little more complicated and worrisome.
We had settled on a construction loan provider despite having been offhandedly told by several people that we wouldn't get financing. In an effort to continue to move the process forward, we figured what the heck, lets just see where we get with the design that reflects exactly what we want which put the walkout level as main living space. Recall that at this point we didn't actually have a set of plans, but just a working print of a floor plan and elevation I had sketched and given to a drafter draw up in D size. Because we had nothing invested in this design other than my time, we figured there was little risk in attempting to get financing approval with what we had. The worst that could happen is that our design wouldn't get the OK and we'd have to be disappointed and start over.
Incidentally, the real estate agent who was representing us in the land purchase also tried to tell us we wouldn't get construction financing without a full set of buildable plans even though she had absolutely no experience with this. This is the same agent who tried to tell us we'd never find land to do with what we pleased that that we'd never get past local zoning restrictions with an unusual--her word-- design. Did I mention I dislike real estate agents?
So it was on to getting our plans appraised, and as has been the case before, stubbornness was my asset. I asked the bank for a referral to some of the appraisers they work with regularly because I figured a familiarity between the parties involved might help. I called one of the appraisers already known to our bank and explained our design to him. He informed me that putting a kitchen on the lower level of a home wasn't entirely unheard of in the area we're building in, apparently because of the high number of lakeshore properties, and that it shouldn't be a problem. Honestly I don't know if this is accurate or just his convenient reasoning, but I guess it doesn't matter. What any appraiser is working off of is “comparables”, or properties in the area that are similar enough so as to provide a baseline value figure with which he can estimate the potential value of our project. In addition to the proposed design of the home, they're also interested in what type of windows, appliances, finishes and mechanical equipment are planned, and what this all seems to boil down to is whether or not the amount of money one is asking to borrow is at least vaguely in line with the implied value of the completed home. I infer that it is unlikely that that any reasonable plan appraisal would ever be called into question in new construction and that as long as something gets built with the banks' money, that's roughly what was planned and not cardboard and tin, you're good, but I guess this remains to be seen since a final appraisal will be required after completing construction.
In the end, after receiving a lot of mostly negative input and spending a lot of energy worrying, we got our appraisal and plan approval without incident or question. This was one of the many times I've felt like calling everyone that had told us it wouldn't happen and gloating and shaking papers in their face, but again, the moral of the story is investigate everything for yourself regardless of who tells you what and don't ever take a single “no” for an answer.