Choosing the log home producer is only the beginning in planning for your new log home. Who is going to build it? How much will it cost? And, where can I get mortgage and construction financing? These are just some of the questions that you will need to answer in the process of making your log home a reality.
The following information is provided in outline form to quickly give you ideas to use in the planning of your home. We know that not all questions or steps are addressed here, but this will get you started. Contact your Jim Barna Log Homes representative for more specific answers to your individual needs.
I. Five Major Considerations in Getting a Log Home Built
A. Land – finding the piece you want and selling what you’ve got B. Design – deciding what you need, how it will work and what it will look like C. Financing – finding both mortgage and construction money D. Construction – do yourself, be your own general contractor, or hire all done E. The Budget
II. The Budget
Close your eyes and picture the home that you want to build. Keep focusing until you get a clear picture of your home. Look at it in as much detail as you can imagine. Good. Now, open your eyes….get out your wallet…..! REALITY CHECK!
Nobody’s dream is to be in heavy debt for the rest of their life. To really be what you want it to be, your home must be affordable, comfortable to maintain. The budget – how much money you are able or willing to spend on the project – will be the most limiting factor and will have a bearing on the following considerations.
III. Land Considerations
A. Use a professional Realtor so that hidden problems can be uncovered. B. Is land buildable? Septic permit – percolation or soil evaluation tests Ingress and egress; encroachments and easements Covenants or restrictions on size, building materials, style, etc. Planned or proposed construction around property C. View, privacy, convenience, location, etc. D. Final house design will adjust to fit property E. Land should represent 15%-20% of total budget in most cases F. Mortgage companies like small building tracts rather than large acreage.
IV. Design Considerations
When you closed your eyes and pictured you home, did you see it from the outside or inside. Most see the outside. But we live inside. Therefore, the residence should be designed, first of all, to function the way we want – to get the proper flow and to work to meet the needs of our family and lifestyle. That means designing from the inside out. Don’t worry about the outside, we can make it look like your vision, and I guaranty the neighbors will be impressed!
To begin, make a prioritized list of the following:
A. Actual needs: Number of bedrooms, baths, floors, etc. B. Priorities: Master suite, big kitchen, dining room, family room, porches, etc. C. Foundation: slab, crawl space, basement, walk-out (adjust to site) D. Placement of rooms: Children’s bedrooms in relation to master, utilities E. Amenities: garage, spa, mud room, etc. F. Assign room sizes and space requirements for each room G. Make sure plan fits lot or that lot fits plan.
Compare list to budget. Ouch! Start separating “Gotta have’s” from “Nice-to-have’s” Refine until all needed elements are included in an acceptable affordable plan. Jim Barna Log Homes sales representatives are experts at helping you to arrive at the right design solution.
A. Mortgage Financing
Most banks and mortgage lenders have little experience in log home financing. As a result, there are some very popular myths that exist within the lending market. Some feel that log homes are appreciably different from conventional construction so that the general financing guidelines exclude them. This is not the case. First, though, let’s explain how mortgage financing works:
Nearly all mortgage lenders lend money according to a set of standards established by the Federal National Mortgage Association – acronymed “Fannie Mae”. Fannie Mae’s guidelines to appraise the value of a property tell the appraiser to find three homes of similar style and construction that have been built and sold in the same area as the house in question within the last 12 months. The sale price of these would be compared to the proposed home to establish the home’s market value. These homes are referred to as “comparables” or, shortened, “comps.” This has at times been interpreted to mean that the appraiser has to find three log homes within a certain radius or county that have been sold in the last year. That’s nearly impossible in most areas, and would seem to make log homes un-financeable! Fannie Mae, though, sees log homes as being “rustic construction and style”, just like a rustic wood frame home with cedar siding, as an example. Therefore, any rustic style home can be used as a comp. The appraiser or mortgage loan officer just needs to contact FNMA to get their clarification. A mortgage can then be issued, based on the appraised value of the home and property, the construction costs and the customer’s credit and ability to repay the loan.
Jim Barna Log Homes can make available to you a list of mortgage companies that will issue mortgages on our homes nationally, provided that a General Contractor is used in the construction of the home. See your sales representative for details.
B. Construction Financing
The mortgage, or long term financing, will only be issued on an existing structure. A construction loan must be arranged to get the home built. Many banks can issue both types of loans, rolling them together into what are called “Convertible” or “Permanent” Construction loans. In the event that your mortgage is coming from a different source than your construction loan, which can be written by a local bank, the mortgage company can issue an Irrevocable Letter of Credit, or L.C., to the bank guarantying that the construction loan will be paid off by the mortgage company upon completion of the home. The construction loan can then be written by the bank with the assurance that they will be repaid according to the terms of the L.C.
Construction loans are generally written as 90 day or 120 day notes. Funds are made available either at set intervals as different stages of construction are completed, called “draws”, or as receipts are turned in as proof that work has been performed. Each bank will have its own method of payment and inspection.
Note: Most lenders will only loan money on homes that are constructed by professional builders or where a General Contractor is in control of the job.
VI. The Construction Process
A. Decide who will build your home.
Do it all yourself
General contract it yourself
Hire a general contractor to do it all
B. Limiting Factors in deciding who will build
Knowledge and skills
C. If you decide to build it yourself or be your own G.C.:
Describe exactly what you want in minute detail
Count the cost to build
a. Time it will take to build b. Cost of materials c. Cost of tools, interest on loan, etc.
Plan the sequence of events – the ‘Flow Chart’
Get three bids for each item or service to be purchased
Be specific in your requests
Allow a safety net in time and money – overruns can reach 20%!
Carry Builders Risk and Workers Compensation insurance!!!
Attend the Barna Log Home Institute for specific training.
D. If you decide to act as your own General Contractor:
Convey exactly what you want to each subcontractor.
Get three written bids for each item or service
Make sure all bids reflect exactly what you want
As important as price is how well the sub understands and communicates with you. Build a good rapport.
Understand the sequence of events and schedule appropriately.
a. Let all subs know you are working to a schedule b. Institute bonus/penalty program to stick to schedule
Get certificate of Workers Compensation insurance from each sub!!!
Be prepared for cost overruns of 15-20%
Attend the Barna Institute for specific training.
E. If you decide to hire a General Contractor to build your home:
Choose one that you can trust to build it your way.
a. Make sure that you understand each other explicitly. b. Get references and check them out thoroughly.
Be very specific on ever detail of the project in written agreement.
Make sure that Contractor is financially able to commit to your project.
a. Check bank references b. Is Contractor bonded?
Get Certificate of Workers Compensation Insurance.
Bring Contractor with you to the Barna Institute.
Let him do his job.
a. Don’t interfere with work in progress unless a problem arises. b. Always address problems with the Contractor, never a worker.
Keep the lines of communication open at all times, and be patient.