Fo­cus on Fi­nanc­ing

Build­ing a log home re­quires two kinds of loans.

Log Home Living - - Contents -

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

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