Buying and building your dream cedar log home is one of the most rewarding experiences of a lifetime. This may also be one of the most significant financial decisions you ever will make. Educating yourself about new home construction loans and log home financing is imperative to ensure the process goes smoothly. But no fear, you have come to the right place.

The first decision to make is whether or not you will be acting as your own general contractor (GC) or hiring one to build your new log home. This decision will dictate the type of construction loan you will apply for when ready. For more information on this aspect of building your new cedar log home, please visit our construction page.

If you choose to act as your own general contractor, an Owner/Builder construction loan will be necessary. With this type of loan, the bank will make the draw payments to you rather than a GC. Almost all of our clients act as their own GC, and Cedar Direct is there to guide you through each phase of the process.

Once you have chosen whether or not you will be applying for an Owner/Builder loan or using a general contractor, you can apply for a new home construction loan and begin the log home financing process. The main difference between a new, traditionally framed custom home and a log home is the payment of the log home package. In addition to the deposits paid on the log home package, an additional draw is required in the bank loan to pay the balance of the log home package in full on the day of delivery.

Not all banks have programs with an additional draw to pay the log home package balance but don’t worry. Plenty of banks will finance log homes with competitive rates similar to any new custom home construction loan package.  Cedar Direct can provide you with several options for bank financing, depending on your individual circumstance. Just ask us for bank referrals. We will happily work with you to ensure you are fitted with the bank to fit your needs specifically.

When constructing a new home, there will be two different loans, possibly three, during the entire process. A log home construction loan will be in place while the home is being built. Once the home is finished and ready to move in, the log home construction loan will roll over into a traditional or standard home mortgage. You will only have to pay for one closing. That saves a lot of money.

The good news is that you will only pay interest on the log home construction loan as you take draws from the bank. For example, the principal will not be paid until the loan converts, and as you take more money in draws, the interest-only payments will increase.

The possibility of a third loan would exist if you used a loan to pay for the property before obtaining a loan for the new home’s construction. This is unnecessary, and the bank will hold the first lien on the property. Paying cash upfront for the land is not beneficial, which may make you cash-poor during construction. A small deposit or hand money can be given to hold the land until the construction loan is approved.

• Establish a budget – this is the first step in building or buying any new home. Ensure your budget allows for approximately a 10-20% overage, as is the industry standard. Your budget should include the land (if necessary), the log home package, all of the construction costs and additional building materials, and a GC’s fee (if necessary). Make sure to check out the mortgage calculator below to calculate your monthly payments. Cedar Direct can help you establish your budget.
• Once you have signed your Custom Log Hom Package agreement with Cedar Direct, you can apply for your construction loan.
• As the construction loan is being processed, the blueprints will be drawn by Cedar Direct, and bids will be gathered from various subcontractors (when acting as your own GC).
• Ensure your bank allows ample time to construct your new cedar log home (typically 9-12 months) so there are no issues if there are delays due to weather and unforeseen circumstances.
• Keep in mind that any work you complete on the home is considered “sweat equity” by the bank and will add to the entire project’s value.
• Typically small community banks are a better option for Owner/Builder and construction loans. Construction loans offer higher risk with lower returns than traditional mortgages. Many of the larger lenders no longer offer construction for various reasons since the recession in 2008. Approaching your local lenders, credit union, Farm Credit Service, or even regional banks are a good option to begin.

You must have the following items together for the bank so they can process the log home construction loan. Cedar Direct can assist with items about the log home package and some of the other construction aspects. This list will vary from lender to lender.

1. Final construction blueprints provided by Cedar Direct Log Homes. The bank will need these to prepare comparables (comps) and estimate the home’s cost.
2. Before closing on the construction loan, you must provide your building permit. Your local township or city will require a small fee and a copy of the final construction blueprints to grant this permit. Each area will have varying requirements to obtain a building permit. Please check with your local city or township office where the home will be constructed.
3. A copy of the Custom Log Home Package Agreement from Cedar Direct. A copy will suffice made from your original.
4. A cost breakdown from the GC or bids from all of the subcontractors that will be working on the home.
5. A contract from the builder. This will vary depending on whether you are working on the home or completing the under-roof construction.
6. A sealed survey of the land where the home will be constructed.
7. The land deed will be requested if you own the property.
8. Each banking institution is different. Please check with your local branch for a complete list of all the items required to process your construction loan.