Instant Negative Equity - Woot!

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   This may or may not interest most of you, so I'll try to keep it brief. The wife and I and after having the opportunity recently to pay off nearly all of our old debt and still have a substantial amount left over for a downpayment decided to buy a new house. And by new, I mean buying the land, hiring a builder etc. etc. So we picked out a lot, agreed on a price, found a builder, applied for a loan and off we go. Everyones pretty excited to move into something much bigger and nicer, everything is right in the world. 
Today, I send an email to the bank that we are getting our loan through asking for an update on our loan application. Everything seems to be going ok, our income to debt ratio is good, we have the downpayment, only thing we are waiting for is for the appraiser to come back with an official appraisal so that the bank knows that the house we are building is worth the amount of money that we are spending. We have been pretty good only making some minor upgrades, some of which were actually comped by the builder. All would have been sounded great except for when the loan office makes the statement : "That’s the only problem we’ve been having lately because of the soft real estate market for actual sales, which is what the appraisers have to go by.". MMMkay? I ask for clarification because to me it sounds like there is a posibility the appraiser will come back saying the house isn't worth what we are paying because of the soft market which wouldn't be good. Essentially, the loan officer says they have been running into the situation lately where they are having some problems getting loans approved because exactly that is happening. And a lot more than they would like to admit. 

After explaining that we really werent going to be in a position to put down much more than the 20% of the proposed value I asked what our options would be if the appraiser came back with an appraisal under the value that the builder want. He said the most common option was to apply for a home equity loan to pay for the difference of what the builder wants and what the appraisal value is.... Basically, depending on how much they value the house at vs. what the appraisal is, we could walk into a house with little or no equity even after a 20% downpayment. Considering the appraisal hasn't come back yet, I am trying not to get too worked up about this as it might be all for naught, but WTH? No wonder the housing market is in the crapper. 

TL/DR: I don't want to pay $200k for a new house that the bank says is only worth $170k and piss away $40k of my hard earned money. 

Edited by oldpbnoob - 21 June 2011 at 1:33pm