What happens if your appraisal comes in below what the materials are going to cost? The question here is how much below and how much more cash you can put into the project. Say you have a home that’s going to cost $200,000, including the cost of the land and all the permits and fees. You were planning to put $40,000 cash (including your land purchase) into it, and pay for the rest of the costs with a $160,000 (80% LTV) loan.

If the appraised value comes in at only $150,000, an 80% loan amount will only cover $120,000 of costs, so you’ll need to come up with $80,000 of your own money. Lenders are definitely aware of this equation and will not grant you the $120,000 loan unless you can prove that you already have the $80,000 available.

5. Make sure your lender and your log home manufacturer are on the same page about draws (the method and frequency that funds are disbursed from the lender to the log home manufacturer). Construction lenders of traditional homes have always had a problem with the log home system of big up-front costs on delivery

of the log package because they’re accustomed to paying for materials in sections: $X amount for the foundation, $X amount for exterior walls, $X amount for the roof, and so on. Since most log homes are customized at the mill and arrive in one or two big shipments with many of the exterior and interior materials, the traditional construction lender may not allow complete material draws at that point. Other lenders more accustomed to lending to log home customers may now allow only a curbside draw when materials arrive on site.

“This is a serious problem,” says Patti Urban of Golden Eagle. “We have always insisted we get a certified check for our materials package at least three days prior to shipping. We do increment our payments between down payment deposit, which is 10% of the package price needed before we start processing your order. Our first shipment to you comes after you’ve paid 40% of your package price, plus any change order charges. Then when we have our final rough-in shipment ready, we must have the final 50% payment prior

to shipping.

“This kind of payment schedule means we can keep our costs down and work smoothly,” Urban says. “Lenders who know us and know we always deliver materials as we promise have been willing to accept this pay schedule in the past, but over the last year, some of them have made the whole experience so difficult that the whole deal falls apart.”

This isn’t to cause you to lose short-term hope. On the contrary, the lending markets will thaw, and many of these problems will ease in one area or the other. So five years from now when you’re celebrating a big Thanksgiving dinner under your glowing log ceiling, when everybody asks you “How were you ever so lucky as to get this place?” you can just answer, “Well, you know, good luck comes to those who meet challenges with preparation.” CBLH

 

Shari Steiner is a licensed real estate broker, a speaker, and the co-author of Steiners Complete How-to-Talk Mortgage Talk and Steiners Complete How to Move Handbook. You can find out more or ask her questions on her www.movedoc.com website.

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