Enjoying every step of the process on the journey towards getting your structure is key to an overall good building experience. Many frustrations, both in planning and in execution, can be mitigated by taking a little extra time at the start to research and familiarize yourself with the process. We’ll help guide you through many of the unknowns by looking at some of the components you may encounter while financing your structure.
It’s never too early to begin considering financing avenues of how you’ll bring your structure to fruition. Whether you’ve purchased land and already know what type of structure will best serve you, or you’re at the very beginning stages of dreaming your future project, the sooner you can answer this question, the smoother your entire project will go. The majority of our clients pay for their structure with cash, but it’s also common to seek out some sort of financing for portions of a project. If you plan on paying with cash, you’re off to a great start and far less steps will be necessary. If you are considering financing, let’s look at a few things that will make you more equipped down the road.
Financing for this type of project greatly differs from a typical home loan. The first question you must answer is how you are going to use the building is because it dictates the type of loan you may need. Financing for commercial agriculture and storage structures are one thing whereas residential structures are completely different and generally harder to qualify for.
Some of the common types of loans:
This type of loan works by paying the contractor, or builder, by way of a lender. Generally, the lender will remit payment to the contractor in various increments are stages of construction are completed. Construction loans are typically more short term and higher interest rates than a home mortgage. Blueprints are required to secure a construction loan. There are two different types of construction loans you may consider. Construction to permanent loans and construction only loans. Construction to permanent loans reshape into a mortgage upon construction completion. These tend to make for easier qualifying since it is less risky for the lender than a construction only loan, which is exactly as it sounds like, and is only intended to cover costs until construction is completed.
Home Equity Loan
A home equity loan is an option if you need to source a large sum of cash for a single time expense. There are often minimum amounts lenders are willing to loan, generally around $35,000. There are also closing costs incorporated into home equity loans, similar to mortgages. Interest points, similar to prepaid interest, may be an additional cost. These points may lower your interest rate and be a good option to consider.
Home Equity Line of Credit
Contrary to home equity loans, a home equity line of credit involves little to no closing costs and the interest rates are often even variable. With a HELOC, the available equity in your home is your source to borrow against. Similar to the functionality of a credit card, the amount of available credit is replenished as you repay the borrowed funds. There is often a draw period of 10 years, and a credit limit which was established at the time of closing on your home.
This entails financing your land purchase and using cash for your structure. One important distinction however is the difference between a lot compared to raw land. Raw land is land in its natural state, which is not yet suitable for building and requires several steps of preparation. Lot land is intended for development and most often has already been prepped to a certain extent.
As with many aspects of purchasing a structure, the approach towards financing may vary widely and depends on the unique situation of the purchaser. While Barn Pros does not offer financing ourselves, we are happy to talk with lenders for any technical questions that they might have. Most of our clients who finance their projects have had better success by seeking out smaller local/regional banks & credit unions. The common national lenders generally aren’t interested in these types of projects. Some people have luck with large lenders such as Farm Credit Services, but we generally recommend smaller lenders like Washington Federal or the equivalent in your state. The more you educate and familiarize yourself with the existing options the easier this process will be. Don’t be afraid to shop around as much as possible as well because terms for these types of loans can differ from what you might expect when taking on a mortgage.
Home Improvement Loan
These are intended for remodel projects rather than new structures.
Our payment schedule
Our simple payment process consists of three segments. The structure order is accompanied by a $10,000 non-refundable deposit. The order then goes to engineering and drafting where the blueprints will be drawn up. Upon completion of the blueprints, an amount in the difference of the initial $10,000 and 30% of the total is made. (30% of total – $10,000 = 2nd payment). The remaining 70% is collected 3-4 weeks before set ship date.
Remember that this is something you should be considering from day one. Financing these types of structures is nothing like a typical mortgage and it can take you by surprise. Understanding your budget and usage goals before diving into how you are going to build the structure to can make the entire process simpler. While we don’t want you to rule out financing options, we do strongly encourage you to pay as much as you can in cash or to save yourself a headache and get the best deal.
As always, give us a call if you are ready to talk through your project and make your dream a reality.