Focus on Financing
Building a log home requires two kinds of loans.
All too often, we figure out how much we think we can budget for a mortgage and expect a lender to agree. Unfortunately, financing doesn’t work that way. To get an idea of how much a lender will approve for financing, multiply your annual income by 36 percent. Next, subtract the money you spend each year for paying down debts (car loans, student loans, credit card balances) and for taxes and insurance on real estate. The answer is the amount most lenders believe you can allocate toward your monthly mortgage payment.
To confirm your status, arrange to get pre-approved for financing. The process varies from a simple telephone interview to a detailed inspection of income-verification documents.
It’s important that you find a lender who understands the marketability of log homes. Lenders who make standard loans only on existing conventional home purchases may not be very interested in lending on an unbuilt custom home because their appraisers may not be able to find comparable homes to determine potential resale value once the home is built. Lenders whose experience is limited to conventional homes may not understand how log homes are built. If they believe log homes are still cabins in the woods, for example, they may feel uneasy about making a loan on one.
To satisfy lenders’ requirements for making loans on custom-home projects, you’ll need additional documentations: construction drawings, soil and other tests, permits, supply list, budget, log producer’s information sheets, builder’s list of qualifications on similar projects. If you’re planning on doing much of the work yourself or if you’re going to be the general contractor overseeing subcontractors, expect to produce documentation verifying your qualifications.
Two Kinds of Loans
Knowing how much of a mortgage loan you qualify for is crucial, but it’s far from being the whole story. Building a log home also requires a construction loan. As its name implies, this loan covers the cost of actually building your home, from site preparation to certificate of occupancy.
The construction loan usually carries a higher interest rate and a shorter payback term than a conventional mortgage loan. Its appeal to the borrower is that it entails paying only interest. When the home is built and approved for occupancy, the mortgage loan pays off the construction loan and takes over