Financing A Log Home - What You Need To Know!
Ah, yes—being an informed consumer is so important, isn’t it? And when it comes financing a log home, there are a few things any potential log-home buyer should know, which is what we will discuss here.
Interestingly and traditionally, lending officers haven’t been as well-versed with log-home construction loans as they have been with traditional home-construction loans. Along with that, lies the fact that some lending institutions have felt uncomfortable with offering log-home mortgages for a variety of reasons, but that is beginning to change for the better as far as log-home buyers are concerned.
If you have difficulty locating a lending institution that will cater to log-home loans, contact a log-home manufacturer who may, very well, have loan-related insight to guide you in the right direction. Also, be aware that some larger banks often partner with niche lenders that specialize in log-home loans, so don’t hesitate to ask!
Let’s take a peek at a few things you should know regarding the financing of the log-home of your dreams.
Log-Home Financing—Easy or Difficult?
The fact remains that there are fewer lenders who offer log-home mortgages when compared to traditional home-loans. There are a couple reasons for this: 1`) in any given area there is a predictable shortage of comparable log-homes that can be used to determine the value of a log-home you might wish to build and 2) many times, log-home owners will either over-build or under-build in neighborhoods which creates challenges with establishing a real value for an appraisal. The bottom line is this: lenders want to be able to recoup any losses in the event of a foreclosure.
Even though the trend for limited lending is improving, it would be wise for you, as a potential log-home owner, to seek the expertise of a mortgage broker. A mortgage-broker can offer the best financial avenues and guide you to help bypass any mistakes you might, otherwise, make before you even apply for a loan. Errors you might make, unknowingly, without the assistance of a mortgage broker, could result in your loan being denied.
You Can Finance Your Land!
If you have a lot that 1) is under 30 acres and 2) has utilities already established there, you can take advantage of some wonderful financial options for borrowing against your lot. Loans can range from 5 years to 25 years with either fixed or adjustable rates that are reasonable. In fact, some lenders are willing to offer upwards of 90% of the lot’s purchase price. If your lot does not meet the two criteria, above, you would be up against much higher interest rates and points.
With cash in hand from your lot, you have an advantage with increasing your chances of securing a construction loan for your log-home—let’s face it, money talks! The best type of construction loan is called a ‘single-close’ loan where permanent loans are built in. Many times, single-loans allow the recipient to alter rates or loan amounts once the home-construction is complete. Construction loans can be converted into a traditional mortgage after the home is built. Construction loans operate in such a way where a certain percentage of money is paid out by the bank in exchange for verification that labor and materials were legitimately utilized towards respective construction phases of the home. On-site inspections are conducted by bank representatives during the construction process.
What Lenders Will Be Looking For:
Lenders will probably require a down-payment of at least 20%. Lenders will also expect great credit and steady employment; and as a log-home buyer, your credit may have to be a bit better than what is normally expected since a log-home is considered a greater risk than a traditional home. As with any home, lenders will need to be convinced you have the ability to comfortably make monthly payments on a regular basis—taking everything into consideration including insurance, and taxes. Your budget will affect every aspect of your home—from its size to its level of amenities to its location.
You’ll Need Two Loans:
Whether you build your log home yourself of have a professional do the work for you, you’ll need two loans: the construction loan and the standard mortgage loan. The construction loan is short-term and can be valid from 6 to 18 months. It can be offered to a professional-builder or an owner-builder and is independent of the mortgage loan. Building any home presents different collateral requirements; and since your not-yet-built home cannot serve as collateral for the construction loan, other assets will be required by the lending institution to act as collateral. Valuables including stocks, bonds, land, savings accounts etc. will be up for grabs in terms of making the lender feel comfortable with lending you money for the required construction loan.
Barrow As Much As You Can!
Yes, barrow as much money as possible! Realistically, unforeseen circumstances can enter the picture which can alter the amount of cash you will need to complete your log-home’s construction. As mentioned, with construction loans, money is drawn as it is needed for various phases of construction. Obviously, estimates will, of course, be provided regarding how much money will be required for the finished project, but unintended surprises--such as more-costly excavation modifications, as one example—can crop up and you need to have the required money, readily available, to avoid any stalled projects. Worst-case scenarios have resulted where insufficient money was barrowed and foreclosures resulted.
When building a log home and securing the financial backing, you’ll soon realize it becomes not only a financial journey, but an intense emotional journey. There are demands, logistics and deadlines that all come into play and it can be overwhelming at times. In the end, however, you’ll discover it will have been worth all the up’s and down’s because living in a beautiful log-home is an intimate experience you will delight in for decades! You’ll look back, you’ll smile and say, “We did it!”