The Log Homes Council, part of the National Association of Home Builders, gives the following advice on choosing the best loan for your log home project (see the full article at the Log Homes Council Website):
Compare & Contrast Lending Programs
You can start with your local bank on Main Street, as well as with regional or national lenders. You can also sign up with referral websites to receive information from scores of lenders competing for your business. If you choose the latter, you may want to create a disposable email address because you will be inundated with offers.
Your current financial situation, long term goals and advice from your lender can help you determine if you will be opting for a fixed rate or an adjustable rate loan. Keep in mind that banks and lenders charge fees for just about everything, usually based on a percentage of the loan amount. Lenders also differ in the amount of closing costs and inspection fees in different locales, so it’s helpful to compare and contrast different loan programs.
Construction-Permanent Loan Option
The most desirable loan to obtain is a one-close, construction-permanent loan. This is a single loan that accomplishes two things with only one set of closing costs. The construction portion pays builders, subcontractors and materials suppliers in a series of draws. Once the home is constructed, the loan is automatically rolled into a typical mortgage payment. Depending on where you are located, local lenders may or may not offer construction-permanent loans. If you don’t have that option, you can obtain two loans and take the hit on paying closing costs for both.
Look For Log Lending Experience
It’s important to shop for lenders that have experience with log homes. If you are working with a local builder/dealers representative, they can often recommend lenders they have worked with in the past. Your local builder or log home manufacturer can help you prepare some of the building documents your lender will need, including final construction plans. When shopping around, ask the lender if they have recently (in the last year or two) created loans for other log home buyers? “That simple question can save you a lot of headaches,” says Greg Ebersole, loan production manager at American Log Mortgage. (If you need financing for your new home email Greg: gebersole(at)bankahb.com or call 717.285.6605.) A lender versed in log homes can help you with paperwork and point out problem areas that other lenders might overlook.
At Issue: A Fair Appraisal
Perhaps the biggest advantage for using a lender familiar with log lending is the issue of obtaining a fair appraisal of your future dream home. Lenders without log experience will assume they have to find comparable sales of other log homes within a 10-15 mile radius. Since log homes are rarely sold (homeowners tend to make these their last home, then bequeath them to their relatives), this can be problematic for the lender. “We get a lot of calls about this, from prospective home buyers working with their local lender who is stuck on the comparable sales portion of the appraisal process,” Ebersole says. “Typically we don’t require a log home comp. As long as it is a similar value, we can work through this.” The Log Homes Council also has information for appraisers on this website, which indicates that comparable value can be found in other custom homes with similar amenities.
At Issue: Construction Terms & Schedule
Have you ironed out a construction schedule with your builder, including a start and completion date? This will be important when shopping for a lender, specifically the terms and schedule in the construction portion of the loan. Lenders locked into a conventional home program may only allow six months, with significant penalties beyond that time frame. In contrast, American Log Mortgage offers a 12 month construction loan, typically because custom home construction simply takes longer. “Ask your lender what the time frame is and what the penalties are if you exceed the construction time frame,” advises Ebersole.
At Issue: Draw Schedule
Construction loans are paid out in a series of payments or “draws.” The draw schedule lists work that must be completed for each payment. An inspector hired by the bank will visit the job site to verify that necessary work is completed before issuing a draw check. At issue is the difference between conventional and log construction. In stick frame construction, the framing portion of the job is covered by a builder’s line of credit with the local lumber yard. Log home manufacturers naturally want to get paid when they deliver your log home package to your jobsite. Again, a lender familiar with log home construction will issue a payment for these materials. Ensure your lender is familiar with this portion of the project, Ebersole advises, noting that American Log Mortgage has a program in place for paying manufacturers directly.
Compare With Good Faith Estimate
The only way to sort out the best deal for you is to ask for a good faith estimate of all fees and closing costs from each lender you are considering. While the ultimate cost may not exactly be 100% of that good faith estimate, it shouldn’t be dramatically different. If a lender or broker hesitates to give you this estimate in writing, find another broker or lender.
Have Contingency Funds
Most lenders advise buyers to set aside a contingency fund of 10% of the cost of the project, to cover unforeseen costs. This ensures you will be able to complete your home in a timely fashion and avoid any penalties for exceeding your construction schedule limit.
Where Are the Lender’s Decision Makers?
If a lender’s decision makers are cross town or across the nation, this can impact the speed of decision making. Ebersole points out that American Log Mortgage’s decision makers are all in one place, in offices in Mountville, PA. “Having everyone here—the loan officers and support staff—helps us work through any challenges much faster.”