Here’s how Round One of trying to secure financing for our log home went…
Getting To Know The Bankers
We actually spent several months talking with various banks about their likelihood of financing a log home (in general) and their willingness to finance our log home (in Williamson County, Tennessee).
Early on, we were just feeling the banks out to see what their rates were, what their knowledge of log home lending was like, and how good they were with follow-through. As a rule, most would say “yeah, we’re definitely interested in loaning you money for a log home”. Also as a rule… most banks truly had no intention of touching a log home loan.
In their defense, many of the banks we met with were in the process of — or had recently been going through — a merger of some sort. (You know banks…) This meant, lots of staff turnover, including key loan officers and decision-makers.
By The Time We Meant Business…
Unfortunately, when we really got serious about securing a loan to build our log home (between August and October 2007) the banking industry was dealing with a lending crisis and by October, they had instituted (much stricter) new lending rules.
In reality, the banks were being forced to tighten up on mortgage lending after hitting rock bottom from all the bad loans they had previously granted — generally speaking. (Check out this Mortgage Implode-O-Meter.)
So, when the banks changed the rules regarding the amount of money they were willing to lend and the amount of cash that they were requiring upfront from the borrowers… we were forced to sit down and hang tight for the next few months.
More About Log Home Loans & Banks
As you probably know, since log homes have so many unique characteristics to them, they are considered “non-conforming”. And non-conforming loans, by their nature, are harder to find comparables for. (That means it’s harder to find similar homes in the neighborhood, upon which a home’s appraisal is based). They’re also more expensive to build and insure. As a result, non-conforming loans are simply not as easy for the banks to sell off in a portfolio of home loans — to 3rd party investors. That’s just one of the reasons most banks shy away from log home loans.
On top of this, is the fact that we are self-employed. While we’ve had our company (as a sole-proprietorship) for several years, it wasn’t until recently that we decided to “incorporate”. To banks, that means our company didn’t even exist until 1 year ago. Without more than 2 years of business documentation (as an incorporation), ours is a “no docs” loan.
All in all, this past Fall was a very difficult time for us to try & get a loan because:
- Home loans were not being doled out as freely as usual.
- Ours was for a “non-conforming” home loan.
- And a “no docs” non-conforming home loan at that!
…I guess they have to draw the line somewhere.
All This Means Is…
If we wanted to get the loan today, we would simply need to come up with a bigger down payment, in lieu of paying higher rates & fees. (Personally, I was thrilled to learn that it has nothing to do with our credit. In fact, that’s probably the only thing that was in our favor. And probably the only thing that had all the banks saying, “Yeah, we’d love to loan you money.”)
Fortunately, with everything bad there is usually some good that can be found. And the up-side is… all of these delays have actually led to some really fun changes with our log home’s design.
That’s why we don’t regret for a moment that we’ve been been on one heck of a roller coaster ride. In the end, what’s another 6 months?
