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The Mortgage Game
Some Lenders Have a Cow Over Custom Home Plans. Learn
How To Secure Financing – And Get Your Dream Home
Dawn M. Exline
This article was originally published in the February
2005 edition of Log Home Design Ideas magazine.
After years of research and planning, you’ve found
the perfect spot for your log home. You’ve selected
a package, given a nonrefundable deposit to the producer and
applied for a construction loan. Everything has fallen into
place. Or has it?
The assessment seems to be taking forever: Your log deal
calls to make sure your loan is in place. Then your loan officer
calls to say that your home’s assessed value came in
$100,000 lower than its projected costs. Translation: now
you have to bring in $75,000 cash to close the loan. AARRGGHHH!
So how did this happen? It’s tempting to blame the
bank. Those mean moneylenders just don’t “get”
log homes, right? Not exactly.
Although log homes are somewhat unusual, these days more
lenders are comfortable with their value. Lenders don’t
care about the style of your home. They do, however, want
your home to have some relationship to the others in your
neighborhood. This is what lenders call the “comparables.”
Keeping Up With The Joneses
Lenders need to know how much your home is worth before approving
your mortgage application. Since they can’t appraise
something that doesn’t exist yet, they have appraisers
compare your house plans with other homes that have sold in
the last six months within 5 miles of your home’s site.
The lender then assesses your home’s value on the basis
of those sales.
Depending on where you plan to build, you can imagine how
difficult it can be to find a log home of equal size and value
– especially in the “boonies” where homes
are scattered. And if your home appears to be an anomaly,
lenders may reduce its appraised value (and the money they’ll
lend you) or reject your loan application.
So how can you secure a loan without sacrificing important
design elements? Consider these standard items that lenders
use to appraise your home – and the risk of financing
it.
Don’t Over Do It
The bigger your home the better, right? Not necessarily. There
is such a thing as being too big for the neighborhood. If
all of your neighbors have 1,500-square-foot homes, buyers
who want a 3,500-square-foot home probably won’t even
look in your area.
Also consider average costs. Just because you spend twice
as much on gold-plated fixtures doesn’t mean buyers
will pay for that luxury. Remember, the cost of your house
has little or no impact on value from the standpoint of buyers
and appraisers. So, if your house is dramatically larger or
more extravagant than the others in the area, the appraiser
will negatively adjust its value.
Don’t Under Do It, Either
If a house is too small for its neighborhood, lenders will
stay away. One-bedroom houses and homes below 800 square feet
are extremely hard to finance. But even a 3-bedroom, 2-bath
1,800-square-foot house can be tough to assess if it’s
surrounded by mansions.
Don’t Go Crazy
Only people with enough cash to pay the bill can design exactly
the house they want. Most people need to concern themselves
with the potential resale value of their home – and
so do lenders. Getting too creative with design may be a luxury
you can’t afford. Your home doesn’t need to look
like everyone else’s. Just pick appropriate areas within
your home to be a design pioneer. By incorporating some of
the area’s basic design trends, you’ll end up
with better financing options – and a custom home that’s
anything but average.
Dawn Exline is Vice President of Client Services
for Stratford Financial Services. For additional research,
she recommends the new release, Building Your Own Home For
Dummies, co-written by Stratford Financial Services CEO Kevin
Daum with Janice Brewster and Peter Economy.
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