Dealing with Banks on a partial build?

Improv241April 18, 2011

Has anyone had this experience?

I'm looking at building a large home, finishing downstairs (while it's just my wife and I) and then finishing the upstairs bedrooms once the kiddos come along.

I know banks aren't too keen on this... anyone know of hurdles that I will face with this? Any tips?

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I think the only hurdle that you should face is the value of the home. If the space is qualified as bonus / unfinished space or whatever it can't count towards the value of your home so you won't be able to borrow as much. We had friends who planned to do this, but couldn't qualify for the loan with the space unfinished. If you are not tight on the loan amount to finished value of the home ratio (without accounting for the unfinished space), you should be fine. If it's tight, then it will get tricky.

    Bookmark   April 18, 2011 at 10:26AM
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I'm only going to want a loan value to rough-in the entire upstairs. I plan to finish the rest later - with cash, or small construction loan.

The finished area would end with the stairs leading upstairs...putting an exterior rated door at the bottom of the steps. Then keeping the zones upstairs to 45-50F...

    Bookmark   April 18, 2011 at 10:46AM
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The banks concern is what can they sell the place for in a foreclosure.

Finding a buyer who would want an unfinished upstairs is not going to be easy, so they are going to curtail what they will lend (if they are willing to lend at all).

They may even have to hold the note if the house does not meet underwriting standards for sale of the note in the secondary market.

    Bookmark   April 18, 2011 at 1:12PM
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I understand the concern. I'm sure someone has done this before... Anyone?

    Bookmark   April 18, 2011 at 2:17PM
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We're getting ready to do this with our house. It is a cape cod style with the "2nd story" in the rafters with dormers for egress. The 1st floor is ~2500 sq ft with 3br / 3 1/2 baths. The upstairs space will be labelled as 'future' or 'storage'.

I think you may run into bank issues if you're trying to build a true two story house where you have attic space over the second floor and you leave the 2nd story unfinished. You will probably have to make sure to have at least 3 bedrooms & 2 baths on the 1st floor to get the appraisal where it needs to be and to keep the bank happy on the risk end. Hope that makes sense.

    Bookmark   April 18, 2011 at 3:16PM
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We are planning this also but not to the bank stage yet. Our main floor is 2800 sq ft, 3 bedroom, 2.5 baths with an unfinished attic for the official record. The third bedroom is really a study but feel we must label it a bedroom for the appraisal. It is also a cape cod style with the second floor space within the rooflines. Once we move in we will finish the second floor to include three ensuite bedrooms. We will also pay for finishing the second floor out of pocket.

    Bookmark   April 19, 2011 at 7:40AM
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Hmm interesting ideas here.

Definitely sounds like there would be issues going this route with an attic over the 2nd floor. However, going the cape style kind of gives the flexibility of being able to label it as a "pimp-tastic attic".

We haven't locked into a plan yet, as we're still in the early phases of picking out a plan and lightly modifying.

Thanks for all the input! If anyone else is doing something like this, please let me know! The more input, the may stir up another question.

    Bookmark   April 19, 2011 at 8:35AM
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You can also frame out a cape with a roof capable of being lifted by a crane, add a complete second floor, then out the roof right back on.

It does require all the first floor framing be adequate for the final design, and the AHJ is going to want a PE stamp on the plans.

    Bookmark   April 19, 2011 at 10:06AM
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Wow brickeye,

That sounds expensive! But I guess that could be a good way to get around the bank's dilemma's.

    Bookmark   April 19, 2011 at 11:26AM
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My husband and I did this with no problem. We went through a mortgage broker and got a 6% 8 years ago then refied for 4.25%. As long as you are preapproved for the cost of the home and the home appraised for that amount, you should have no problem. The only problem arises if the construction cost is higher than the appraisal. In our case we paid less than the appraised value leaving us with equity on which to draw if we wanted to go that route to finish off the upstairs. (rates are higher for equity, so we did not go this route.)

Having said all of this, remember that you are taking a risk. Houses with unfinished upstairs do not sell easily and life happens, so it may take you longer to finish than you think.

    Bookmark   August 23, 2011 at 4:59PM
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8 years ago was a completely different lending and appraisal climate. In today's construction world, banks are very risk averse, and nothing says risk like DIY involvement or partially constructed structures. Even homes that aren't overbuilt with upgrades are having issues meeting appraisals. Bringing money to closing is more often the reality than the exception.

If you want to go this route, your best bet will be a cash build on property you already own.

    Bookmark   August 23, 2011 at 5:56PM
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If it is a cape cod style house, you might get by with it. If it's a true two story home, it will be hard to pull off. My wife and I started our build paying cash with the idea of getting a loan halfway through. It didn't work out as we had planned. Most banks would not even consider us. There was two banks that would of worked with us, but we would had to go through a lot of paperwork and the house would need to be completely finished before they would give us a permanent mortgage.

Here is a link that might be useful: Our experience with a construction loan.

    Bookmark   August 25, 2011 at 1:58PM
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