House building question.

[jen0610]

We have a friend -40 year old single guy, twice divorced, no kids, zero plans to ever get married again. He owns free and clear, 6 acres of land down in Arkansa. Works as a police officer and has 20% as a down payment.

He has very specific floor plans and where he wants the house built on his land. Already has the plans drawn up. Nobody but him likes his plans and he knows this because before actually having plans drawn up, he asked for DH's thoughts, as well as mine and a few other of his friends. He is dead set on building a 932 sq foot home, with 2 bedrooms and 1 bath. The whole back side and right side (if looking at it from the front) would be buried in the side of the hill on his land, with the whole backside of the roof buried as well. No garage, just a covered parking area attached on the left side of the house. The quote he has to build this home, as designed is 112,000.00. Which he can afford.

Now to the question part, the bank has come back to him and said that they won't lend the money because: #1 there are not 3 similar houses within a 50 mile radius to do a comparable to. #2 the house is to small for the amount of land that he is going to build on. They are telling him, that in order for him to get he loan approved, he has to not build it into the hill (to get past the nothing to compare to) and it has to be at minimum 1400 sq foot (to get past the amount of land he is building on). According to him, that much house he can't afford and the bank has been told he can't afford that much. They basicly told him that if he wanted to build a house on that land, he had to do it to their requirements.

Has anyone else ever heard of this happening to someone? He is beyond ticked. He has talked to 3 other banks and has basicly been told the same thing by all of them. Basicly, he is at a stand still - he can't get a loan to build the house he wants and can afford, because the banks want him to build to their requirements. His responce to the whole not having something to compare it to, was whatever happend to being unique and one of a kind.

What advise would you give him, if he was your friend.

 

[tlbwriter]

The bank is taking a risk by loaning him money. If he defaults on his loan, they'll have to foreclose and sell that house. Since he has no way of demonstrating that the house will sell for any particular amount of money, what does he expect them to do?

 

[allyphoe]

What advise would you give him, if he was your friend.

Build it with your money, not the bank's. Only ~$90k left to save.

 

[TheIncredibles!]

What would I tell him? I'd tell him to look to see if he can subdivide part of his land and sell it. That way he has a smaller lot and can build a smaller house and has extra money to work with.

 

[Thumper_Man]

How much would it cost him to add the extra 400 sq ft.? If it would cost him the same amount of money, then I would make it 2-story. I don't know Arkansas' building codes, but he might be able to get away with building it into the side of the mountain this way. As long as the 2nd story stood higher the hill. 1st story could be considered a basement.

 

[DrCavin]

I have never heard that a bank would say you have to build a house x sqft because of the amount of land you own.

Building something that is worth the loan amount totally makes sense.

 

[jen0610]

The bank is taking a risk by loaning him money. If he defaults on his loan, they'll have to foreclose and sell that house. Since he has no way of demonstrating that the house will sell for any particular amount of money, what does he expect them to do?

I told DH I would bet that this is major reason why they are denying the loan. For 99.98% of of the population, that house is unsellable. IF he were to default, that house would be worthless to the bank.

The size and built into the hill - all of us, the friends he has talked to, have told him this is a VERY BAD IDEA. He has been told by all of us, I think, that if he should ever have to sell, about every single woman who looked at it would say no, without ever stepping one foot into it, because of it being way to small and built half into a hill.

I have never heard that a bank would say you have to build a house x sqft because of the amount of land you own.

Building something that is worth the loan amount totally makes sense.

We have never heard this before either and didn't know if it is because everybody else we know who has built a house, has a 1500+ sq ft house, but because he is looking at a house so small, that it is a normal issue for that much land. But then again, when I look at website for house plans, they do have houses this small and smaller.

 

[mikehn]

Its the banks money. They can dictate whatever terms they want to protect their interest. I would advise your friend to shop around to find a bank with a little more flexibility.

 

[The Mystery Machine]

We have a friend -40 year old single guy, twice divorced, no kids, zero plans to ever get married again. He owns free and clear, 6 acres of land down in Arkansa. Works as a police officer and has 20% as a down payment.

He has very specific floor plans and where he wants the house built on his land. Already has the plans drawn up. Nobody but him likes his plans and he knows this because before actually having plans drawn up, he asked for DH's thoughts, as well as mine and a few other of his friends. He is dead set on building a 932 sq foot home, with 2 bedrooms and 1 bath. The whole back side and right side (if looking at it from the front) would be buried in the side of the hill on his land, with the whole backside of the roof buried as well. No garage, just a covered parking area attached on the left side of the house. The quote he has to build this home, as designed is 112,000.00. Which he can afford.

Now to the question part, the bank has come back to him and said that they won't lend the money because: #1 there are not 3 similar houses within a 50 mile radius to do a comparable to. #2 the house is to small for the amount of land that he is going to build on. They are telling him, that in order for him to get he loan approved, he has to not build it into the hill (to get past the nothing to compare to) and it has to be at minimum 1400 sq foot (to get past the amount of land he is building on). According to him, that much house he can't afford and the bank has been told he can't afford that much. They basicly told him that if he wanted to build a house on that land, he had to do it to their requirements.

Has anyone else ever heard of this happening to someone? He is beyond ticked. He has talked to 3 other banks and has basicly been told the same thing by all of them. Basicly, he is at a stand still - he can't get a loan to build the house he wants and can afford, because the banks want him to build to their requirements. His responce to the whole not having something to compare it to, was whatever happend to being unique and one of a kind.

What advise would you give him, if he was your friend.

The house is unsellable as previous poster said.

If he wants to build this house then he needs to pay for it cash up front.

 

[tvguy]

The house is unsellable as previous poster said.

If he wants to build this house then he needs to pay for it cash up front.

That happened to some neighbors of my father in law. They wanted to get a $100,000 mortgage to build their dream home. They qualified income wise for the loan. But the banks said no because that was almost twice as much as the highest home sale price in their city's history. They both worked jobs where there were a lot of opportunities for overtime. Took them 3 years, but they saved up the money, paid cash and got their dream home built.

 

[MrsPete]

I know about this type of house. It's called a Berm House, and they're supposed to be energy-efficient and inexpensive to build. My parents considered building such a house at one point -- but they didn't. There's one in our area.

I understand why the bank would be hesitant to put its money into this house: IF they should have to reposess it (I know, I know, your friend wouldn't do that, but the bank has to think this way), they'd have a time re-selling it. 1) Few people want a house smaller than 3 bedrooms /2 baths these days. 2) Many people are turned off by the "underground" idea, although these houses usually have large windows on one side, and they aren't cave-ish.

You ask what happened to "unique" and "one of a kind". Watch HGTV a bit: See how often people declare that they MUST HAVE granite countertops and stainless steel appliances. No one wants unique. Everyone wants "in style". And see how many times people complain about "outdated, we'd have to re-do it!"

He doesn't look like a huge risk to me. If he were to fail to pay his mortgage, the bank would be able to take his 6 acres of land and his 20% down.

On the other hand, I don't understand why the bank says it's too small for the amount of land. In my limited experience, I think LOTS of people would like to have something in the 5-10 acre range -- enough for privacy, not so much that taking care of it is burdensome. My husband and I are planning to build a retirement home in a couple years, which will be about 1600 sf on 40 acres. Someone could say that's small for the acreage. I wonder if people would consider that small for the land. We don't really care -- it's what we want. We are, however, choosing a plan that can easily be "added onto" in case we need to add a second master suite someday (thinking ahead to our elderly years -- it would allow one of our daughters to move in with us, if necessary), or if one of our daughters inherits the house and needs more space.

Since he's already tried several banks, I'd say he has two options:

1. Keep saving 'til he has more money to put down. If he had perhaps 50% down the bank might be more willing to lend. Less money lent = less risk for them. You can get a used mobile home for essentially "take up payments". Would he consider putting something like that on his land 'til he can afford what he really wants?

2. Build a different house. Since he's looking to stay at a modest price, he could consider a modular home. It would never be a Berm Home, of course, so the question is, How badly does he want that unique style?

Has he tried a credit union? They can be more lenient sometimes than banks.

 

[Tink888]

The bank is taking a risk by loaning him money. If he defaults on his loan, they'll have to foreclose and sell that house. Since he has no way of demonstrating that the house will sell for any particular amount of money, what does he expect them to do?

Banks can and do this all of the time.

The uniqueness of the house will adversely affect the marketability making the loan high risk.

"Different" is harder to sell. That's the same reason people who add unique features to their home are often surprised when they have it appraised and find that those features didn't add much, if any, value to the home.

He can keep trying other lenders but his best bet is to wait a few years and save the cash to build the home he wants (and plans on being in for awhile).