Welcome to the Forum, Wannabebuilder:
This is one job that needs a couple of professionals before begining. First, I would retain a Professional Inspector as a guide through the quagmire. Then, I would hire a Professional Real Estate Appraiser (one who has credentials, not just any real estate sales person or Realtor. The appraiser can tell you the market value of the existing house and the future value of the addition which will not only tell you how much you can build, but would also hold up in court is the city doesn't agree with you.
The three of you need to meet at your house and thrash it out together. They will both give you written reports of their findings but I would ask the inspector to go on retainer as your "go-to" person through the project, many of them will charge an hourly fee for actual time on the job.
I wish you well with your project and hope you can keep us advised, including pictures of your progress.