Financing Your New Timber Frame Home

What are my first steps to take in order to afford my dream timber frame home?

Now that you have made the decision to build a timber frame home, the first step in making your dream a reality is to learn how the financing process works. To assist you, Mid-Atlantic Timberframes has written this short guide on the financing process. We hope you will find it helpful as you prepare to finance your dream.

1. Determine your needs.

Because every timber frame project is unique, not every homebuyer will have the same financing needs. Determining your needs early in the process will help guide you through designing and budgeting for your new home.

The cost of the timber frames alone generally runs between $50,000 and $150,000 depending on the size and complexity of the frame. In general, the final cost of building a timber frame house that includes timber framing runs between $200 and $250 per square foot.

The following factors will affect the cost to build a timber frame home:

Materials
Architectural details
Design complexity
Homebuilder or general contractor

2. Select a lender.

When selecting a lender, look for one who is experienced in construction-permanent lending. Also make sure that your lender will accommodate the required payment terms of your timber frame company.

3. Get pre-approved and apply early.

Getting pre-approved for a loan early in the process will help you understand how much you can qualify for up front and what your down payment will be. A pre-approval is generally good for a 120-day period and will allow you to understand how much you can afford and the opportunity to take advantage of a better interest rate. Typically a construction loan interest rate is auto-locked at the time of application.

4. Obtain an appraisal.

The appraised value of your new home is based on the value of the land and the cost of construction. Working with your builder or general contractor, you will develop a custom construction disbursement schedule and determine at what point the construction will be complete. Your builder or general contractor will order inspections throughout the process. It is important to know when your home will be completed in order to get the best rate-lock option available.

5. Schedule your settlement.

Once the appraisal is received, a settlement will be scheduled for you to sign all the required paperwork. At the settlement you will pay some of the closing costs and any existing liens against the land. This is typically when you will begin to make interest-only payments to your lender on the funds that have been disbursed during the construction. Once the final home inspection is complete, a certificate of occupancy is issued. Your loan will then be modified into a permanent mortgage, and you can begin to enjoy your new timber frame home.

Greg Ebersole, mortgage originator at Orrstown Bank, gives the following advice on financing a timber frame home:

“The process of financing a timber-frame home isn’t much different than financing a traditional stick-built new home, but there are a few things you should keep in mind.

Timber-frame homes typically require a larger down payment. This largely depends on where you choose to build. Due to the uniqueness of a timber-frame property, there may not be comparable properties in the area to base an appraisal on. As a result, your new home may not appraise for the full value of the home, so homebuyers should be prepared to have a higher down payment when seeking financing.

Homebuyers should also finalize as many details as possible prior to applying for financing. Any changes that are made after construction begins will most likely be considered out-of-pocket expenses if the cost exceeds the loan amount. One way to avoid this is to build a contingency factor into the loan. Ask your lender to explain their policy on the use of contingency dollars.”

For more information on financing your timber frame home and how much a timber frame home will cost, contact Greg Ebersole at Orrstown Bank.

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