New Log Home Construction Financing Loans
Log home financing is very similar to framed construction. A construction loan is a short term (usually 6, 9, 12, or 18 months) loan, and typically it will convert to a conventional mortgage at the end of the term. Interest is a little higher during the short construction period, but you do you have a large payment, as you typically only pay interest on what you have borrowed during the process. After about 12 months, (most common), you close and your loan is converted to a common 30 year mortgage. Here are some things to remember, look out for, and shop for.
1) Construction loans typically require a down payment, either in equity on your land (the difference of what you owe and what it is worth), or cash reserve, and that down-payment, or deposit, is 20 to 25% (75 to 80% debt to equity, or “Loan to Value”). Mortgage insurance with nothing down is almost non-existent at this time.
2) Some banks or mortgage companies do not do construction loans, so if you do not own your property free and clear and have some cash for an equity loan, you need to find one that has the right product (kind of like trying to buy a Ford at a Toyota dealer, etc.). Shop on the phone first, call your local bank, then others. Tell them you want to build a home, and do they offer construction financing?
3) Loans take time, and many forget that, and think they can get moving when the time is closer to the build. Most banks and finance companies want an appraisal on what you are doing. This takes extra time too. Get a preliminary loan approval first. That is usually fast, and it tells you what you can borrow, so you can determine your total budget for the project, basically the MOST IMPORTANT THING to start, so design first, around the budget! Appraisers wont find new log homes that sold in the last 6 months, so don’t give up, they can look at what you are spending (cost basis), your property value, and a few homes that sold (probably some 30 year old homes that are beat up and foreclosed (just kidding), but basically 3 homes for comps (that wont help you, as they are older framed homes usually) are needed. Loans can take months, not days or weeks, so help them, by staying on top of that part. Give them your plans when things get rolling, your bid, and your turn key. Stay after them and push to get it done. They say weeks, but it takes longer, always. Be prepared. We just want to help here, and expect it to move more slowly than you imagine. Sometimes, a bank can move quickly, but that is the exception!
4) Don’t give up. Many of our customers were denied by the bank, and then they went to another bank, made a new and better proposal, and several on the third and fourth try succeeded. The biggest problem you will face is not getting the right plan done for the right price, it is getting financing in order, to fit your budget, and have the plan you want. The plan you want, and the budget, are two different things. Those that design around the budget, with what they can afford, succeed!