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It makes no sense to design a home you can not
afford to build. Once pre-approved you will have more power to work with
log home suppliers. Understand that log home packages are not
apple to apple comparisons. Make sure all the items you need are
included in your log home bid. Design, Changes, Engineering, Logs,
Delivery, Erection with crew, and Hardware may not always be included in
every package. Make sure you account for everything in your log
home package. Upfront
Costs
In order for your construction loan to close, several items will already
have to be in place.
Plans, Engineering, and Application for Permits will all have to be complete.
The septic approval will have to be obtained. We suggest that you do not
use all your available cash to pay for upfront costs. You will most
likely need to keep the money in the bank for cash reserves in order for the
lender to approve the loan. Talk with our loan consultants to
determine the cash requirements for your future construction
project. Please note any prepaid items must have a receipt and
cancelled check to be credited toward your project. You
will also need to determine what your log supplier requires for
deposits. Some lenders do not comply with supplier demands for
deposits. This could mean you have to pay for the log package out
of pocket. Our lenders will typically pay for 50% of the log
package prior to delivery and the final 50% at the time of delivery.
However, most log suppliers will require a deposit for plans and to get
on the construction list. Depending upon your time frame, you may
want to get a spot with the log yard before plans are complete.
Although you can request this deposit amount back with your first draw,
you may need upfront cash deposits. Again, talk with us
first. Let our
experience work for you. Once plans
are complete, you will need to work with your general contractor to complete the required builder
forms. If you
are acting as your own CG you will complete these required builder forms
on your own. Upon submitting your formal loan application and supporting
documentation, your Appraisal will be ordered to
determine the value for the lender.
Appraisal
The appraiser will look at your
land, the blue prints of your Log Home, the finishes selected for your
home, and then determine a value for the home. After the appraisal
value meets your loan needs, your construction project is sent to the lender for
final underwriting approval.
The value of your home will be based on the
following items:
-
Land/Lot
-
Log Package
- Total Cost of
Completion
Most lenders do not understand
the appraisal process for log homes. A qualified appraiser, who
understands the log home industry, must be used for this process.
Most appraisers just find 3 or 4 comparable properties within a mile
radius that have sold in the past year and submit the report to the
lender. This will not work for a log home. Most likely the
appraiser will not have located any homes that have sold
within your immediate area. Let alone comparable log homes. Since log
home owners rarely sell their homes, finding one for a comparable is
almost impossible. Thus using an experienced log home lender can
either make or break your deal.
There are about 4 log home lenders across
the country who understand the process. Most likely your local bank
will not. Do not place your dream home in the hands of a lender who does not understand the process. Contact experts who
understand every aspect of the log home process. As your home is
being appraised, we will be working with the lender to supply you
options on loan programs. We will discuss these options with you
and together determine which program best suits your financial needs.
Construction Interest Rate
Several factors influence the rate of interest during
construction. Your credit score, term of the construction loan,
who will act as the general contractor, and down payment are the major components.
1. Your credit score is the most
important factor in determining your interest rate. Higher scores
receive lower interest rates since the lender feels their is less risk.
2. The term of the loan also
changes the rate of interest. Typical construction loans are 6, 9, or 12 months.
Our lenders will allow up to 18 month construction loans. The longer
the loan, the higher the rate.
3. Our lenders will loan to owners
who act as their own builder. However, their is more risk
involved with an Owner/builder, than a licensed General Contractor.
Owner/builder loans will have a higher interest
rate.
Compare that increase to what it would cost to hire a General Contractor
and see what is better for you.
4. The down payment will also
effect the interest rate. Our lenders will lend up to 95% of the
homes total value. This would bring a higher rate of interest than
loaning 80% of the total value.
Ideally, loaning at 80% of the homes
value is the best option. It gives you a better interest rate and
eliminates the need for Mortgage Insurance.
Construction Draws
Your construction loan will be an interest only loan during the
construction phase. There are options for the interest payments.
First, you will only be paying interest
on the outstanding amount of the draws. Second, if you have an existing home loan and do not want the additional
monthly payment during construction, provided you have enough equity in
your project, you may be able to finance that interest payment back into the loan.
Please note all lenders
require an inspection prior to the release of draw funds. That
tells lenders that you are making progress on your project. Make sure you know what this fee is and how that
effects the number of draws you take.
We will work with you on setting up your
draw schedule. Most systems are online. We will
also discuss options on paying yourself back for any of the upfront
costs you have paid for along the way.
Roll into Permanent Home Loan
At the time your home is completed, you will be ready to modify your
construction loan into your permanent home loan. Art this time you
will select your permanent loan product, for example a fixed 15 - 30
year loan, Adjustable Rate Loan, or other loan product that best suits
your current needs.
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