Obtaining log home financing will require you to have log home comparables. Some lenders position this as a monumental obstacle. This isn’t the case if both the appraiser and the lender are willing to make a few minor adjustments.
A traditional log home comparable is a similar log home that has been sold within the last year and is within 1 mile of your new home. This is a challenge in rural areas. However, banks will make an exception to the comparable rule if you ask. Ask if they will allow comparable log homes to be within 25 miles and a year and a half of sale date. By extending the requirements, you can typically find one or two more comparables. Comparables are the main challenge because the average person who builds a log home intends to stay there for a long time. The average stay of a conventional home is 3.5 years, compared to a log home length of stay that is more than double. This increase in length of stay reduces the amount of inventory on the market in turn reduces the number of available log home comparables.
Comparables are important because they are the yardstick banks use to determine the value of your log home and assess the risk of lending you the money to build your log home. The fewer homes the bank has to use as a reference, the more hesitant they are to loan money. When a bank becomes hesitant to loan money, they will increase the underwriting requirements to obtain a loan. One of the underwriting requirements that are affected by the appraisal is the loan to value. This is the ratio of what you want to borrow compared to what the bank determines your new home is worth. If the bank has too few log home comparables to accurate gauge what your home is worth, they may require you increase your down payment. If originally you planned on a 10% down payment, the bank may ask you bring 20%.
This challenge can be overcome if you have owned your land for a few years. Banks are willing to use the equity in your lot to create the desired loan to value ratio.
In summary, log home owners do face a few more obstacles than conventional construction, however if you have the right individuals on your team it’s nothing to worry about.
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