I would much rather have the air handler in the basement than in the attic. It is possible that the drain pan can overflow and cause ceiling damage. But I would move it for other reasons. I assume the air handler and duct work will sit on top of the attic insulation and will be outside the insulation envelope. This set up will expose the system to extreme heat and cold conditions. A basement will have a more stable temperature environment. In addition if you ever want to finish the basement it will be easy to tap into the duct work.

It is also easier to maintain and repair an air handler in the basement.

I agree with above post. Unless one has a shallow crawl space, a slab foundation, or a second floor system. Those would be the primary reasons for an attic install. Definitely want superior ductwork install and insulation if in attic.

IMO

Thanks for the replies. You make good arguments to moving to our basement or the crawl space. The only arguments I can see against the basement is that the current code will require me to build a wall around it(I guess this is to prevent cars from running into it. I was also told if we take it or of the attic, then some of the returns will have to take up some of our precious closet space on the main level.

I don't understand why you need to enclose the air handler in the basement. Talk to the code official about this.

You should be able to have a return without going through a closet.

I suspect the builder would like to put the air handler in the attic since it is cheaper and an easier installation. It sounds like he is making excuses to change your mind.