So, you’ve decided you want to buy a log cabin kit. However, you don’t have the cash on hand to pay for it outright. So, how do you buy? Financing, obviously, will have to be the alternate route taken, but unlike a traditional home mortgage, a log cabin kit like those from and others may have to go a different route. The reason is rooted in how the loan will be secured.
Loan Security
Typically, a bank secures a home loan with a right to the title of the home financed if the loan is not paid. This means that if the mortgage goes into default, the bank can force the sale of the financed home to recover its loan monies and risk.
It’s not surprising then why banks are fine with lending big dollars for homes given the current real estate prices and the fact that home prices generally continue to climb after purchase. Log cabin kits, however, aren’t in the same category.
First off, cabin kits aren’t rooted down to a real property site and foundation. They are, essentially, a kit or a prefabrication. So legally, they are considered personal property instead, and it’s much harder to secure a loan recovery from personal property that loses value over time.
So, the traditional mortgage is unlikely as a means to finance a log cabin kit unless it’s already built, secure to a foundation, and combined with a property site. That doesn’t help a buyer much to get started.
The Construction Loan Path
A buyer has to build it first for a bank to be interested. So, that means a kit has to be bought with a construction loan instead. This is a short-term loan to help pay for the actual build of the cabin. The terms are similar to mortgages with fixed or variable interest.
However, the loan is based on the build schedule, which works better when a professional builder is involved. While the cabin is being sited and built, the borrower pays the interest. Once the cabin is completed, fixed, and permanently secured to the property site, then the construction loan is paid off with a mortgage loan.
Now the bank can secure the mortgage against the land property with the cabin and is much more interested in financing. By basically swapping out one loan for the other, a buyer-owner can construct a log cabin kit and have it paid for overtime versus a bit hit upfront.
Pay Attention to the Details
Different banks and builders have different arrangements. Many log cabin builders or construction companies that handle kits have set up partnerships with specific lenders to handle cabin build agreements specifically.
These arrangements can offer additional savings with incentives and slightly lower interest charges, but a buyer should still look at other financing bank options to make sure they are not overpaying for the financing.
Finally, remember that loans are still that; they need to be paid back in full. Any default on a loan can end up causing the loss of the cabin in a sale. So committing to the loan is a definite responsibility and not one to ignore just because the cabin started as a kit like those from Frontier Log Cabins.
