Getting a construction loan and mortgage

Most banks only market conventional loans. Since the mortgage meltdown, things have gotten really tight. I thought with a substantial down payment and an excellent credit rating, I'd be okay. NOT!

The first hurdle I ran into was that banks did not like me being my own general contractor. I understand why now, months later. Everything I read said, don't be your own general contractor, and I should have listened. My architect, Richard Venberg, told me I could save a lot of money being my own general contractor, and he would help me. Back in February, March, and April 2007,I had tried to find a builder who would build green, and dozens of builders and general contractors turned me down. I was convinced that if I wanted to really go green, I would have to manage the project myself. I just didn't look far enough, because there were a small handful of green builders and general contractors in the Twin Cities area. I had obtained the property in December 2006, and I was anxious to get going and get the house started in the summer of 2007. I took on the responsibilities of general contractor without pursuing other options to the maximum extent, and I really regret it. I have not saved money doing it myself, because I've had to hire a licensed general contractor to help bail me out. It turns out Richard, though he was good at design, really didn't know that much about the execution phase. If you're thinking about building your own house, hire an experienced general contractor.

I've learned an enormous amount over the past year. If I ever decided to build another house, I would know a lot. But I still would hire an experienced general contractor. I hate to think what kind of a house and project I would have ended up with without Jeffrey Swainhart. It's all in the details. An experienced general contractor knows how to take a blueprint and do all the things it takes to turn it into a real building.

So a couple of banks sent me packing because I was acting as my own general contractor. I found a few banks specializing in construction to mortgage loans. Everything seemed fine, at first. I had a great FICO score, the banks were willing to lend me as much money as I needed, and I qualified for a good interest rate. The last phase in the process, though, was getting an appraiser to appraise the construction plans.

Building green has more up-front costs. The house will not cost more in the long run, as building green will create huge savings in energy costs and longevity. A metal roof has a 50 year guarantee, while asphalt shingles come with a 20 year guarantee. A metal roof may cost 30-40% more, but it saves money in the long run. Solar powered radiant in-floor heating costs 2 to 3 times as much as forced-air heat, but the energy savings will make up for the increased costs in 7 to 10 years. Using green building materials is good for the planet and my health. None of these translate into a higher appraisal. Business does not care if you build green. If I build a $250,000 house that would have cost $190,000 with conventional materials, the house will be appraised at $190,000, and my mortgage will be based on $190,000, not the $250,000 it cost to build. I've lost $60,000 in equity before I even move into my new home.

Here in Minneapolis, the Star Tribune has weekly articles about how great it is to go green. I agree. But the building and banking industries still have their heads in the sand. There are no special allowances for residential homes when they are built "green". Because of the neighborhood I'm in, and the uncompensated costs of building green, the bank told me my house would be appraised at 1/3 to 1/2 of what it cost to build. Where is the logic in that?

I'm now scrambling to come up with a larger down payment to compensate. I did some research on the internet, and even spoke to some appraisers who hold office in one of the national appraiser's professional organizations. The bottom line I found everywhere was that the banking and appraisal industries are way, way behind when it comes to building green. Hopefully, as more people go green, and there is more of a demand for LEED certified homes, this will change.