I would avoid an ARM, personally, and downsize the plan if necessary. Life should not primarily be about being able to meet the mortgage payment.

palimpsets I agree completely. I'm so attached to this plan I hadn't considered changing it. I appreciate that fundamental reminder!

Downsize the plan or downscale the finishes or both.

Cut budget on what can be replaced fairly easily later ... appliances, countertops and faucets. If you went from posh to used appliances, posh to builder standard counters, and posh to big box faucets how much could you cut?

Often you can get the same look and durability for less if you concentrate on the specifications and not the "I saw it on Houzz" dream aspect. Saving a few dollars per square foot on flooring adds up.

Have you considered contacting another lender and their appraiser? Something as simple as this may mean a change for the better.

Good luck on your project.

Thanks for your advice. I wonder if there are others who've been in this position who would share their decision making process?

We have another lender/appraiser looking at it and are optimistic.

We've been budget mindful this whole process and are happy with our selections and compromises. As it stands with the bid we choose, we're at $124/sq foot (in Texas). I'm more concerned with the financing terms for the mortgage at the end of it all. Though of course a smaller amount spent during construction means a smaller mortgage not matter what the interest rate and terms.

Or you could be in my position where the initial appraisal went well, all funds available at a good rate. A year later when the house was finished appraisal comes in ~100k less than the original. We had to come up w/a much larger amount out of pocket than we had planned, didn't feel too good. But in the end we ended up w/a conventional loan at a good rate it's just going to take a couple years to recoup our out of pocket $$.

Mistman, OUCH! I hadn't considered that problem.

I agree, I would downsize to avoid an ARM. Maybe post the floorplans and selections for feedback?

If you need an ARM to afford the house, with rates as low as what is being given for current 30 year rates that should be sending off major alarm bells.

Try and simplify the plans (less jogs in roofline/foundation) and few other items can help nip budget.

$125/sq ft would not even get you a starter home here. Lucky you.

You sound just like my DH & I a few years ago. Spent $$$$ and over a year on houseplans, bought the land and then things fell apart. The mortgage crisis was in full swing, lenders weren't lending to people who wanted to GC themselves (not that they were freely lending to legitimate builders either but that's another story). GCing ourselves was a huge portion of the savings so we could afford the house we had planned. Then we finally found a lender and just like yours, he looked for alternative ways to make it work for us because the typical loan routes wouldn't work for us due to the appraisal not coming in where it should have--I have the mortgage crisis to thank for that. That's when warning bells went off for us--they went off for DH a little before they did for me. I was so set on the dream...

Then I found GW... Here's a link to that original post that so sounds like yours: http://ths.gardenweb.com/forums/load/build/msg0101135230086.html

The members on the forums were great at giving advice on which decision to make and helping hammer out plans. I owe a huge debt of gratitude to Summerfield Designs in particular for steering us in the right direction and all the hand-holding through getting the elevation just right. If you haven't figured it out by now, we ended up changing the dream.

How did we do it? First we made a list of all the things we knew were needs (i.e. 3 BR/2.5 Ba min), then listed the wants (i.e. mudroom, laundry room). Then we took the needs and specced out the specifics--minimum room sizes, room locations, etc. We kept a lot of the features we liked from the first floor of the original dream home and incorporated them into the new plan based on the list of needs. In the end, we were able to add another bath, give the kids walk-in closets, and a staircase to the attic/future bonus. It took a lot of late nights, a lot of compromise, a lot of will power to stay with the needs and not keep adding in the wants that inevitably grew square footage tremendously. Summerfield helped us come up with the exterior elevations which were fabulous. We then took the floorplan drawings/elevations & the CAD file from the previous draftsperson (who gave us the rights to the plans) to a totally different design team who we came across during the very frustrating & $$$$$$ process of designing the original plan. In just a week we had initial drawings with some modifications the new designer made to use space more efficiently. Within 3 weeks, the floorplan was set and we went to work on the elevations. 2 weeks after that we were done. We put the drawings out to bid and eventually decided on a builder. Getting the financing was much easier with a smaller house (it's still more than twice the size of the starter home we came from). Within 2 weeks we were breaking ground. We lucked out with the builder as he only builds homes with stick built open roof plans (I think that's what its called) meaning if we want to, we can finish the entire attic space less knee walls! 5.5 months later, the house was done and we were all moved in...and finally LIVING the dream.

Anyway, that's how we did it. I wish you all the luck in the world with your project. Sometimes things happen for a reason that hasn't been revealed/uncovered yet. For us, it was definitely the case. DH asks me all the time, "What if the bank had agreed to the original plan on those crazy terms? Would we be living the life we are now or would we be worrying about how to make the mortgage payment every month or worse yet have lost everything due to the market volatility?" And at those times, I agree and breathe a sigh of relief that we came up with a new dream home. And truly, the house we built fits our needs better & I still get thrilling rush of joy when I pull up to the house after work each day. The icing on the cake is that with a smaller house, there is less to clean!

Hope this rambling post helps! Feel free to contact me via the boards or email if you need any help.

Here is a link that might be useful: Build The Dream or Modify It? Post by mydreamhome

Thanks for your thoughts, mydreamhome. I've read your postings elsewhere but didn't know your backstory.

We approached two other lenders about this project. One was interested but then backed off, and the other is eager to get involved and make this work. Starting with a fresh appraisal.

We have the money to finance the project with lender #1, but it just seems wrong to accept a high interest rate when rates are low. I didn't understand how important the pre-qualification for permanent financing was in this process.

Bottom line: we wait. Our builder is chomping at the bit (he won the bid in March!) but it's our money, not his.

As a side note, despite laws and regulation in the post housing bubble that should prevent appraisers and lenders from working too closely together, it seems to me that each lender seems able to get the appraiser they want.

My initial plan design was for a flat roof with a 1/12 pitch in michigan no less. I also wanted an indoor inground pool. Well I found out that wonderful midcentury modern roof would cost me 70000 alone. And just the humidifier for my pool would be in the 30k range. I did not want to change I loved my house as his. But I wanted to build. I went back and created a hip roof and put more into design of the front of the house than I had done before. My house front was fairly plain. Now it is more alive an interesting. My new hip roof was 50,000 less. I also opted for an partially underground endless pool in a four season room seperated from the house. In the end these were sacrifices but in the end I like the new plan just as much. Deciding to change was extremely difficult as I believed there was nothing as good as what I designed. I am happier than with my first plan.

I'm not done my build, but after a break-up from what I *thought* was going to be my future, I found myself in a budget crunch. Build a house I could afford (that was smaller) or keep waiting till I had enough money for the big dream.

In reality, I knew I would be sinking money into rentals and waiting too long for the "big dream". I knew what I *had to have* and what I was willing to compromise.

The final plan is beautiful. It's inexpensive enough that the mortgage will be paid by the time I retire, the monthly payments leave room to spare now (as a single woman) meaning more $$ should my man (yes, somehow that showed up too!) make me his, and designed with the ability to expand easily in the future should it be necessary.

That's how I see. Make your current plan as small as you can with all your must haves, include the ability to expand later on if necessary, and enjoying being able to do stone counters instead of laminate because you don't have 50' of cabinets to cover ; )

Just an update to our situation. The 2nd appraisal came in, and it's worse than the first. This project is officially on hold. Bummer.