The Log Home Experience is an educational series by eLoghomes, meant just for you. From the time you first dream of log home living, until you are relaxing and
unwinding in your finished home, our goal is to help make your journey easy and rewarding.
Whether you are dreaming of fully financing a log home or are a cash buyer who may need a supplemental loan for your build, it’s helpful to understand how construction loans work.
We turned to four experts in the banking and mortgage industries who finance log homes and asked them for their advice. Here, they provide their outlook on the latest in interest rates, ways to make the loan process go more smoothly, how to manage the draw schedule, and much more. We are grateful to our following four colleagues for providing valuable insights.
Senior Vice President
The Federal Savings Bank
Originating Branch Manager
Cross Country Mortgage, LLC
Vice President
The Federal Savings Bank
Senior Loan Officer
Pinnacle Mortgage Corporation
NMLS 1323739
Personal NMLS 1366210
Tom Coronato: We don’t ever know for certain where rates will go, but the time to lock in could be the week before the impending rate cut. Because the euphoria will happen right after the rate cut, and then people will start jumping into the market.
It’s always about the payment. There are programs where you could put someone into a higher rate with a lower payment. People often care more about the size of the payment, and the rate becomes less relevant. If you can lock in at 6% and you can afford the payment, that is a great scenario.
Michael Marsh: Rates are coming down almost like a point and a half from their highs. And if inflation is going down, you’re going to see rates go down. No one’s got a crystal ball, but the quarter-point rate reductions are what we anticipate. It can really impact mortgage rates if it actually goes to a 1/2 point rate reduction.
All of the indicators pre-, during, and post-COVID are almost invalid right now. It’s a whole new world. For example, last March rates went up three-quarters of a point, but then rates came down. It’s just one of those questions that’s really hard to answer, because no one really knows. As long as inflation keeps going down, we’re going to see a trend down in rates.
GETTING ORGANIZED
Rhonda Croft:
Rhonda Croft: If you’re the average person, and what I mean by average is you’re not self-employed or you don’t have a lot of rental properties or something like that, then the main thing we need is 30 days’ worth of pay stubs, a photo ID, and at least last year’s W-2 forms. We have to establish a two-year work history. If you’ve had more than one job over the last two years, then we’re going to ask for two years of W-2 forms, and that pretty much can get us started—just those three simple things.
Tom Coronato: Before the loan closes, we figure out the draw schedule. We normally go by the draw schedule set by the builder, and there will be inspection points for those funds. The build time frame can last anywhere from 6 to 12 to 18 months. Some banks will not lend on 18 months, and others will.
Rhonda Croft: The biggest things are the soft costs—people forget all of those. These include costs that are involved with construction—closing costs, permits, engineering costs, and survey costs. For instance, if you have to do a survey on your land for any reason, those can all add up. In some areas, you can do a building permit literally for $150.00, and in other areas, such as where I live in Colorado, I’ve seen permits to the tune of ten grand. So it depends on where you live.
Tom Coronato: We’re going to ask a lot of questions that you may not know the answer to, and it’s perfectly fine that you don’t know the answer. The probing questions that I will have are: do you own the land, and if you do, how much is it worth? If you don’t know, that’s fine—we can get on Zillow and Redfinrealtor.com and figure that part out. The next question I’m going to ask is, what do you think your budget is, and your response should be, as cheap as possible.
If it’s $100,000 for the land and $300,000 to build, you can say, okay, $400,000 total. And then we have to say, if you were building for $400,000, what do you think it’s worth? And you’re going to say, I don’t know. Well, again, perfectly acceptable answer—let’s get on Zillow. What are you building—a 1500-square-foot building, 3-bedroom, 3-bath, let’s find the town that you’re in. If you are the only $400,000 house in that town, you may have a problem. If many houses are 3-bedroom 3-bath, 1500 square feet at $500,000, no problem, because you have excess equity.
Bob Tuttle: If you own the land, which is a bonus, it depends what stage the land is in—is it approved or unapproved? Is there water and sewers, or is it on septic? Is there a road? Is there power? So, there are all kinds of questions just about the lot itself.
The rule of thumb for cost to build right now is about $300.00 to $350.00 a square foot. If you own the land, you might be like $250-ish per square foot. So, if you already own the land, more times than not, you won’t have to pay PMI, because the appraisal should be high enough that your house should be less than 80% of the value of the land.
THE LOAN PROCESS
Rhonda Croft: Here is a scenario that can slow things down: sometimes, the general contractor pads the estimate with a certain set of allowances. Then I get the appraisal, and it doesn’t come in high enough because of all those extra numbers that were added. So, I have to go back to the contractor and ask for the real cost. Things like this can delay closing by another month, depending on how long it’s going to take the general contractor to go back to the subcontractors to get the correct numbers.
If I have an accurate budget to begin with, I will have you closed within 30 days from that budget. If you are guessing at numbers—for instance, saying that cabinets are going to cost you $30,000 when you don’t know what type or how many cabinets you’re ordering, then chances are that your budget is not very accurate.
Once I put all of a customer’s numbers together on a spreadsheet, I may have to tell them something along the lines of this: based on what I qualified you at, you now need to bring $50,000 to closing. And nine times out of ten, they’ll say, well, I don’t have that much. And I say, you may not actually need it, but I’m basing this on your general contractor’s numbers. So, you have to get an accurate cost upfront, because otherwise, it just doesn’t pan out. So, the important factor for making everything go smoothly is to make sure you have the right numbers for your job.
Michael Marsh: My best advice for making the loan process go smoothly is to get pre-approved. This involves checking out your credit score, looking at your financial background, and seeing if you’re even a good candidate for this.
Rhonda Croft: We give everybody a 12-month build time. But almost all of my log home properties seem to go over that 12-month time frame, which can be a source of contention for our bank. That’s probably why some lenders choose not to do log homes—it’s just because they seem to have a more difficult timeline.
I just tell people straight up from the very first conversation—if someone tells me, I really want to get this started in the next two months, I’m blatantly honest with them and say, I guarantee that your contractor is not going to have numbers to you in two months. Also, some counties are more particular than others. I have a gentleman right now who has been closed on his construction loan for almost a year, and he has not dug a hole yet because he has had to redraw his plans multiple times to meet the county requirement. So, you should know your county requirements up front. There is no one-size-fits-all timeline because it’s different everywhere, often depending upon your contractor.
BUY-DOWN PROGRAMS
Bob Tuttle:
This is a fairly common thing that people are doing these days to get people to be able to buy the homes. There are two kinds of buy downs – a temporary and a permanent buy down. For instance, with a temporary buy down today, you may get locked in at a 6% rate overall. For your first year, you’re only paying 4%, and it then gradually increases to 5% and then 6%. For a permanent buy down, you are paying two points or whatever and then your rate goes down to like 5 3/4% forever.
Sometimes people can offer to pay closing costs and then I’ll do the buy down for them. For instance, I can give them a 6% rate with zero points, or five and three quarters with one point. And then they might get $5,000 generic credit to pay closing costs. Or it can be applied to the buy down.
Rhonda Croft: The short answer to making changes is yes, in some cases you can, if it’s nothing too major and as long as you’re within budget. If you are going to make a huge change, that’s a different story. For example, I had a phone call this morning with someone who made major changes to their plan without telling us. They completely changed the septic system and changed to a higher-grade HVAC system, and now they’re out of money. At this point, it’s almost like starting over. I have to tell them that I need all new costs moving forward for what it will take to complete the project. Then we have to order a new appraisal to see if the value is even going to cover the new costs.
Bob Tuttle: We have a contingency amount. If the construction cost is $300,000, we will either do a 5% or 10% contingency, and we also roll that into the loan—so we’ll put an extra $15,000 or $30,000 into the loan for those situations. All you need to do is submit a change order if you want to add a better door or whatever. If you come in under budget, we just lower the loan amount and that’s what you pay.
TRANSITIONING FROM AN EXISTING HOME
Tom Coronato: It’s not natural for people to want to have two mortgages, with one on a departure residence and the other on a to-be-built residence. Normally, they’re going to be selling one to occupy another, but not always. So our borrowers look at options such as: do you sell before the build and move into temporary housing, or do you sell after the build? You can draw a home equity line out of the departure residence early, which you can use to buy the land, or maybe you can finance some of the build.
I have some customers who absolutely will not have dual mortgages at the same time. They would rather just sell and get rid of it, and then live with in-laws while they build. And then I have other customers who say, hey, if I don’t have to move twice and you can get creative, I’ll do that. Either way, being prepared for those moments at the end of the construction loan by having some extra cash lined up ahead of time is probably a good thing.
Michael Marsh: You need to choose a good builder, know their experience, and make sure the builder is “Johnny on the spot” with the paperwork.
Interest rates determine how much you pay to borrow money from log home lenders. Your rate is influenced by factors like your credit score, loan type, and the current market. Even a small difference in rates can affect your total loan cost, so it pays to compare offers from various mortgage lenders for log homes.
Interest rates absolutely play a role, but many buyers find that the monthly payment is what really counts. Whether you lock in at 3% or 6.5%, if you can comfortably afford the payment on your log cabin loan, this may be the most important factor for your budget and peace of mind.
Log home loans are similar to loans for conventional (stick-built) homes, but not all lenders necessarily offer log cabin financing. Work with an experienced log home mortgage lender who understands log construction and appraisal differences.
Some buyers use a home equity line of credit (HELOC) or bridge loan to finance their build, then pay it off once their current home sells. Others may choose to sell first and rent or stay with family during construction to avoid having two simultaneous mortgage payments.
A buy-down program lets you lower your initial interest rate, making your monthly payments more affordable during the first few years of your loan. You (or sometimes the seller or builder) pay upfront points to “buy down” the rate temporarily or permanently. This can be especially helpful for managing your budget during the early stages of your loan.
For example, you might lock in a 6% rate, pay for a temporary buydown, and make payments based on 4% the first year, 5% the second year, and 6% after that. This can make the early years of your loan more affordable while you get settled.
A higher credit score helps you qualify for better rates with lenders, but there are options for people with a range of credit backgrounds. A score of 620 or higher typically opens more doors, but some programs accept lower scores, especially if you can afford a larger down payment.
Not always. However, most lenders will require you to purchase private mortgage insurance (PMI) if you put down less than 20%. Some cabin loans allow for lower down payments of as little as 3% to 5% for qualified buyers. FHA and VA loans may also have flexible down payment options.
Be prepared to provide pay stubs, W-2 forms, a photo ID, recent bank statements, and detailed information about your assets and debts. If you’re self-employed or own rental properties, you may need to show even more financial documentation.
Pre-qualification is an initial assessment based on information you provide. Pre-approval goes a step further—a lender reviews your actual documents and credit, offering a more solid commitment. Pre-approval shows sellers and builders that you’re serious and financially ready.
While there usually aren’t lenders who exclusively work on loans for log home construction, some lenders have more experience with log and timber homes. These lenders can guide you through the paperwork and spot issues that others might miss.
No matter which lender you choose, it’s important to work with a reputable builder or general contractor and a trusted log cabin kit manufacturer like eLoghomes, since every lender will look closely at your partners.
Common loan types include conventional loans, FHA loans (with lower down payments), VA loans (for veterans and active military), and USDA loans (for rural properties). Each option has its own requirements and benefits for financing your log cabin.
A fixed-rate mortgage keeps your interest rate and payment steady for the life of the loan. An adjustable-rate mortgage (ARM) starts with a lower rate that can change over time. If you prefer predictability, fixed-rate is a solid choice for most log home buyers.
Yes, many buyers use a construction-to-permanent loan. This covers the build phase and then converts to a traditional mortgage, simplifying the process with lenders who understand log home construction projects.
Often, yes. Many log home mortgage lenders offer loans that include both land purchase and construction costs in one package.
Start by outlining all major expenses, including the cost of land, site preparation, materials, labor, permits, and utility hookups. Be sure to include soft costs like engineering, surveys, and closing fees, as well as a contingency fund for unexpected expenses.
Work with a builder or general contractor to understand all your expenses. The more research you do up front, the better your chances of avoiding surprise costs down the line.
You may be able to save on costs by choosing a standard floor plan or limiting custom features, and by selecting energy-efficient features that pay off over time.
For example, if you plan to build in an area with freezing winters, choose a log home package that includes thicker logs, premium doors and windows, and structural insulated panels (SIPS) on the upper floors, gable ends, and roof (like the Platinum Energy Package from eLoghomes). This can help you save on energy costs over time.
Always work with a reputable builder or general contractor to avoid costly mistakes.
