Is an Outbuilding Part of Value?

February 19, 2001, Reviewed January 29, 2011

"I am in process of having a home built, and separately I am constructing an outbuilding that will be a combined garage and shop. I am financing the outbuilding out of pocket and it will be completed prior to the completion of the home and the loan closing. If the outbuilding is included in "property value", I won’t need mortgage insurance. My mortgage broker, however, tells me that the property value will be based on the cost of constructing the house alone, plus the property acquisition cost. Am I being ‘horn-swaggled’?"

Probably not. The mortgage broker receives no benefit from a lower valuation, and doesn’t make anything on mortgage insurance. On the other hand, it is possible that the broker just doesn’t want to be bothered. He might have to arrange another appraisal and modify some documents.

The issue involved here is whether your "outbuilding" is viewed as an integral part of the house. If it is going to be permanently attached to the house, it should be included. On the other hand, if it is a stand-alone structure that could be hauled off on a truck, no lender is going to include it in the valuation.

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