If you have a design for your timber frame and are in the process of starting the construction phase, you may find that it is not easy to finance your timber frame home. Who will mortgage a timber frame house is an important question to tackle at the outset of your project. This issue is found in both residential and commercial construction and can be a barrier in getting your project started. The problem is that most banks don’t like releasing money for materials that are not at the job site. However, your timber frame company will need to obtain a percentage of the funds ahead of time to order timbers and cover overhead. These two things can create a conflict with financing; and the bank has the final word.
Here are 6 solutions you might try:
1. Understand this issue from the beginning of your project. Decide how you will be financing this project. If you are planning on working with a bank, ask them how they deal with this issue. If you discuss this issue early enough in the process you may be able to work out a solution.
2. Talk to several banks and mortgage brokers, and find one that will work with the draw schedule and has a good reputation. Your timber frame company may have a recommendation – this issue is not new to them, and they may know reputable lenders who will work with you.
3. Talk with your bank about giving you a short-term loan for the timber portion of the project. There is more than one type of loan available to you; you can often use the equity in your property or other properties that you own for collateral.
4. Talk to the building contractor (if they are separate from the timber frame company); they also may have relationships with lenders that they can recommend to you, or other solutions for you to consider. They are part of the team; they may have some valuable input for you.
5. Gather all the information you can to help with the appraisal process. It is difficult for an appraiser to find comparison reports, as there are not very many timber frames for sale for them to assess. Therefore, they may not have the information to assign extra value to the timber frame. Try to educate them with pictures and articles, about the beauty and sustainability of timber frame construction. If they appraise at a higher value, that may help the cash flow on the project.
6. Work with your lenders and you timber framer and be flexible. If you keep an open mind and are receptive to new ideas, you will find a solution to the financing puzzle.