How To Obtain Log Home Financing In The Midst Of A Mortgage Crisis... Here's What Worked For Us
You've always dreamt of a log home. You've attended the log home shows, read the log home magazines, picked out your floor plan design and you're doing things to save money.
Now all you need is the log home financing. Should be simple, right?
Well, considering today's mortgage crisis... wrong!
Below, I summarize our personal experience with log home financing, as well as provide information and tips that will hopefully help you finance your log home.
Money Talks
When my husband Greg and I started this process, we knew that cash was king!
Greg is self-employed, and I was a 100% commissioned real estate broker.
It was going to be a little more challenging for us, as opposed to a straight salaried worker. We had to save over 20% for a down payment and other incidentals that might pop up.
Start With Your Current Lender
At the time, Countrywide Mortgage was the lender on our current home, so we naturally turned to them for our log vacation home. We felt reassured with our credit history that the process would go smooth. But they ended up being the company in the biggest crisis.
We knew something was wrong when time and time again they kept asking us for more information and the documentation was never satisfactory. (My husband provided 8 years of W2s and bank statements.) Eventually, we realized that they just could do it.
Fifth Third Bank Finances Some Log Homes
Greg happened to talk to a banker at Fifth Third bank (someone not normally associated with financing log homes), and they suggested we contact the branch local to where we were building our log home.
Even though that branch wasn't experienced in financing log homes, they were able to adjust to our specific requirements for the construction loan, and we got our approval in less than 2 weeks.
They required us to hire a general contractor. In retrospect, I wish I could've gotten my builder's license and met the requirement for us to have GC'd the project ourselves and save money, but it all worked out.
Our log home provider (Hiawatha Log Homes) was able to answer all of Fifth Third's questions and fulfill their requirements to help our approval. Hiawatha even adjusted when they would receive final payment of our log home package. Typically, like most log home companies, they require the rest of the payment of the log package itself upon delivery. But Fifth Third needed a few days so they could send a person out there to verify we received the materials -- no problem!
We did have to have an appraisal done -- which was difficult in our area as no new log home had been built within the past 3 years -- but they did end up using those comparables. Additionally, we had to open up a bank account with that branch.
Other Avenues To Consider
Based on our experience, I would suggest trying the local branches to the area where you are building to get that more personalized review. It's definitely worth a shot!
There are other companies that specialize in log home financing. Of course, they are a little tough right now with today's market, but if you have an excellent credit score and a nice down payment, they are worth considering:
When I asked Keith Hopper of Fifth Third bank in Petoskey, Michigan what someone can expect trying to obtain financing for their log home in today's times, he stated:
The conforming mortgage world ($417,000.00 or less) is still available to finance log homes. Above the $417,000.00 mark, we have a problem. The Jumbo market is not willing to take on log home financing at this time.
With this said, consider the cost of your log home project and decide if you can proceed forward. We are in turbulent market times right now, but I would suggest exhausting all your avenues before putting your log home dream on hold. Good luck!
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Nope, we didn't change our log home supplier. We're still with Honest Abe Log Homes... and we're quite happy with them.
We also have our GC -- and he's GREAT. He's been through all the ups and downs with us -- when these banks have requested the same information a different way, or whole new sets of information for no reason. Our GC has been a trooper, and we haven't even broken ground yet.
To answer your question, most of our bank woes INITIALLY (back when loaning money was a normal everyday thing in the banking industry) focused on our self-employment status and the fact that we didn't have 2 full years of being "incorporated" on the books. (Before that, we simply combined our business and personal checkbooks as a sole-proprietor business).
Fast-forward a year or so, and TODAY the biggest problem we've been facing is the fact that banks simply don't want to deal with Jumbo loans (over $417,000). As a result, we've had to scale down our project in order to come in under that amount.
The other thing banks are currently being real sticklers about is the value of your CURRENT home and how much it will be worth when it comes time to sell it. Most of the banks we've dealt with aren't even willing to take a chance on your home selling, so they're requiring that you sell it upfront -- before they'll even give you the loan! We've declined those offers.
The bank we're currently working with has required us to sign an agreement that our house will be sold BEFORE the final closing of our loan -- on the finished end. We're okay with that.
Another thing that the banks are getting away with is this: You pay their "approved appraiser" to do an appraisal of your soon-to-be-built home & property. The appraiser says it's worth X amount. Then the bank turns around and knocks 20% off the appraisal's quoted value! They're saying your new home will really only be worth X minus 20%. Our last 2 appraisals have been that way.
The fact is... even people with good credit aren't able to get home loans these days. We're experiencing it firsthand, and I've heard from dozens of others who are experiencing it too.
Unfortunately, there's simply not money to loan. Banks are broke. We're all paying the price.
Lynette,
Still here but going nowhere with the project due to money and business. Still trying to sell my boat but that market is worse then the housing one. I have been blogging on LoghomeU and have run into Shelly M. there. A lot of questions are asked there but too many commercial members are trying to run free ads for their businesses. This has led to some bad advice and arguments between them. I complained to the web people and they admitted they had a problem and were working to solve it. I find your detailed research has been very valuable, and the best I have found. You have answered a lot of questions that people never think to ask.
I wonder how many log home companies will survive this downturn? I have a casual friend in Sarasota who is serious looking and he says he has run into some really poor dealings with some log home companies in the selling end so he can imagine if he contracted with them how the service would be.
I noticed a change in log home supplier for you, any comment?
It would be helpful to hear the types of problems that you ran into with the banks. I also own my own company and expect problems from them even though my credit is excellant.
Keep it up.
Joe
Hey thanks, Joe!
I was actually thinking about you the other day, and wondering if you were still with us as we've been on this roller coaster ride with banks trying to get financing -- at a time when banks aren't exactly in the loan business these days :o)
Thanks for sticking around... I can't wait to start posting the actual details of our log home and photos while of the construction process -- once we get started.
Yesterday we were at the property to plot out the exact spots the Electric Company will place the electric boxes & run the underground wiring. That's about all we've done in several months.
We're in the final stages of talks with the 3rd bank that approved us (the other 2 bailed out at the last minute). This one had a list of 49 contingencies we had to meet first. So we've been jumping through those hoops for the past couple months.
Still reading your great articles.
Joe