Keeping up with market trends, making the most of your money, and financing the log or timber frame home you have always wanted may seem more challenging than ever in 2015. In reality, there is no time like the present to make log and timber home dreams come true. Several key elements influence home financing today, and these are basic, even during times of economic instability that are hopefully in the rear view mirror for both businesses and consumers. First, work with professionals who are experienced in log and timber home financing. Deal with people you can trust. Do your homework, listen to advice, and make informed decisions.
The old saying that the more things change the more they stay the same applies to log and timber home financing in 2015. Most banks and financial institutions continue to offer basic loans at 80 percent of the appraised value or sale price, in the case of a purchase of an existing home, with terms up to 30 years. Although interest rates are subject to change on a daily basis, they remain favorable and fluctuations are minimal. Fixed rates are attractive, and borrowers may often lock in a specific rate at the time of application. Generally speaking, economists see interest rates remaining at historically low levels through the end of this year.
“Another consideration is the fact that banks have plenty of money to lend,” explains Lloyd Congdon, executive vice president and senior lending officer of Community Trust and Banking Company in Chattanooga, Tennessee. “Loan demand is picking up, and for qualified borrowers the process is straightforward and can be completed in a relatively short period of time, usually from four to six weeks.”
Prospective borrowers save time and money and even reduce the “hassle factor” by determining how much they can afford to spend and then getting prequalified for their mortgage. Developing a budget that includes the proposed payment is the first step. Evaluating income and expenses, as well as cash on hand and payment and credit history, helps to ease the process from application to closing. A loan officer will request such financial information as a current personal financial statement, income tax returns for the prior two or three years, payment stubs, and possibly W-2 income forms. A credit report is then obtained from one or more major reporting agencies, and a cash flow analysis is performed. Qualified borrowers typically have acceptable credit scores, 680 or above, while they also demonstrate a cash flow cushion that covers the proposed monthly payment and provides for other debt service obligations with a sufficient amount remaining for living expenses.
Whether you are shopping for a construction loan or purchasing an existing log or timber home, an appraisal will be performed on the property to determine its market value. In turn, the appraisal will dictate the amount of money that can be borrowed to maintain the bank’s loan to value requirement. In other words, a home that appraises for $600,000 will typically result in a lender financing $480,000 (80 percent) of the cost. In the case of a purchase, the borrower will need cash to cover the difference between the loan amount and the purchase price or appraised value, whichever is lower. Construction financing requires the borrower to have equity in the lot on which the home will be constructed, cash in the bank, or a combination of the two. In either case, the borrower is also responsible for paying closing costs associated with the loan. These costs usually include any origination fee charged by the lender, appraisal, title insurance, recording fees and taxes, survey, and other items.
Construction loans include the added dimension of preparing the log or timber package for delivery to the building site. Before a log or timber company begins cutting for a specific project, it may require as much as 50 percent of the package cost up front. In this case, dealing with an experienced lender that is willing to advance funds for that purpose—or having the cash to make the initial payment to the log company—is paramount. Be prepared.
“The entire process may seem complicated, particularly when someone is involved in a transaction that occurs only once or twice in a lifetime,” Congdon relates. “This is where trust and open communication become extremely important. Ask questions. Compare interest rates, and find the financing program that is right for you.”
Financing a log or timber home in 2015 requires work on the part of the prospective homeowner, but that is true of any worthwhile endeavor. The best news is that economic conditions are favorable, and the months ahead are filled with tremendous opportunity.