Q: I live in Minnesota and we are trying to get a loan on an earth home. We have been turned down by hundreds of lenders because there are no comparables in the area. I was wondering if you knew of any lenders who would lend to us in Minnesota unconventionally?

A: Each alternative home building situation is unique and the devil is in the details of the appraisal. Knowing what the lender wants and how to format it is the key to getting the appraisal accepted. Comparable properties is always an issue with lenders who usually require they be within a very narrow radius from the subject property. Over the past 5 years we have been fortunate to assemble a group of lenders who understand these types properties and are willing to give us considerable latitude on the distance to the comparable properties. Alternative homes represent over 95% of our business and we do them in all 50 states. If you would like to discuss your specific needs and qualifications with me please contact me.

Q: We are in the process of building a strawbale/passive solar home in northern VT. My husband and I have run into a problem with the loan process. We were given a very low assessment of the land my husband has and the loan amount will not cover the cost of the build. We are now seeking a way to finance our home. We are both counselors and we live in a depressed area, and make a lower income for our level of education and skills. We have plans for our lovely green home, have cleared the land, and have plans for the septic system. Any info you could give us would be wonderful!

A: There are lenders available that will provide you with 100% financing for the construction portion of your strawbale home project. They finance the land, materials, labor, permits, fees and closing costs. There are others who will loan you 80% of the appraised value or 90% of the construction cost. Your first step is to have a set of plans, specifications, and a cost break down or budget. Once those are in place you will be ready to submit a formal application. When your construction is complete we will then roll your construction costs into a permanent loan, which is actually a refinance, so you will have virtually no out of pocket costs. 

Q: I am just a Tech at a company called Monolithic Domes and some of our customers have a hard time getting financing and I was wondering how your company would get financing. Also our product is fairly ecological you use 60% less energy and their entirely concrete so they are virtually indestructible: they withstand earthquakes, tornadoes, and floods.

A: Thank you for contacting our website. If you need information concerning financing a dome home please contact Gary Reed at Mountain Classic Mortgages, 970-731-0640. They finance domes all over the country and he can answer any of your questions.

C (John Willis): I understand the sentiment that the financial industry needs to be enlightened. It’s a weird business; a complex maze more complicated and cryptic than most want to know about. Regardless of the extent a lender is enlightened about the value of alternative homes, their problem is that most mortgages are sold in packages on a secondary market. The borrowers and properties must be largely like all others in a given package of loans. If one is different they can’t sell it. If they can’t sell it, they can’t stay liquid enough to finance new properties and rates go up.

There’s another kind of lender called a “portfolio lender”. These lenders never sell their loans, so they’re not accountable to market pressures or rules of a secondary market. It’s totally to their discretion to say yes or no. Credit Unions are one type of portfolio lender. There are others.

What I would like to see is a tax credit for investors on a secondary market who purchase mortgages written against alternatively constructed homes. This would create a larger, more liquid market and make accessibility of these structures much greater.

One very good way to finance an alternative structure is to draw an equity line of credit from another property. Given, you have to have another property with significant equity to do this. But it’s cheaper than borrowing with credit cards (not withstanding the shell games), and if it’s a primary residence, the interest is tax deductible.

I don’t agree with the idea that it’s always preferable to have a home that’s paid for. I’ve done plenty of loans for wealthy people who could have paid cash, because it often makes financial sense. When rates are low, the money you put into your house, could be used for other investments. When you can borrower money for 4.5%, you have to ask what your opportunity cost is. If you put that money in a retirement fund, historically you’d do far better to borrow cheap money and invest your cash at a higher return. Yes, I’m aware of the macabre origin of the word mortgage. But it’s not the death of the borrower it’s referring to; it’s the death of the loan—the time in which it is paid in full ;-)

Q: I am building an earth-sheltered house in Rockaway, New Jersey, of a style that is, I must admit, much more expensive than the sensible and affordable methods you advocate. The house is about 35% of the way to move-in, and further construction is delayed by lack of financing. Because it is an unusual type of construction and I'm building it myself, I could not get construction financing. Do you know of any loans or grants available to people doing earth-friendly construction?

A (John Willis): There are several options I know of, and probably a few out there I've yet to discover. Some options depend on your current financial profile and the exact nature of the structure you're building.

1.) If the structure is acceptable to one of my wholesale lenders, they have what's called a "broken commitment construction loan". Basically they take over in the middle of a construction project. Most often they do this for spec builders who run out of financing, but if the structure is acceptable, they'd do it for you as well.

2.) Do you own any other properties? If so, we could tap the equity in those properties to get you finished. How much additional money do you think you need? Sometimes you can even tap other assets such as cars if you need a relatively small amount of money.

3.) There are a few bridge loans out there. These are temporary loans. They often bear no interest during the loan. Generally, they lien your property for more money than they give you and the balance is due in full in 3, 6, 8 months, etc... Interest is essentially paid by points at the beginning of the loan.

4.) There are private money lenders. This is a last resort. The further you go down this road the less you'll like the people involved. Some of them are good and want you to succeed. Eventually, you'll find predatory lenders who want you to fail so they can take your property. And they're relatively expensive. I have successfully done these on a number of occasions with no problems. But I do consider them a last resort.

Finally, there may be a few other options I don't know about. To find them, I'd have to know more about your financials, and the structure itself and whether there are comparable structures in the area.

Q: I am looking into buying my first home, and I'm wondering what advice if any you can give me about earthship homes. I live in Fort Collins, Colorado and want to stay close to the area. Are there any financial lenders you know of in the area? I really have no clue where to start, so anything to help me get started in my quest would be greatly appreciated.

A (John Willis): Mortgage products for alternative construction are limited; for earthships, they may be even more limited. It's not that lenders don't appreciate low-impact building. There are many reasons the options are limited, but it's a long story.

The way to finance an earthship depends largely on your personal financial profile: your income, assets, debts, and credit. Most first time home buyers don't have a large amount of liquid assets, unless they received an inheritance, legal settlement, won the lottery, etc... So, in order to buy a home they need to use a government program such as FHA which lets you borrow up to 97% of the purchase price, or conventional financing that allows up to 100% financing.

Without a significant amount of liquid assets, your options would be to get a land loan to purchase just the lot. You may be able to borrow from 90-95% of the lot price. Then, you would have to build the house out of pocket or with any other credit you can acquire such as unsecured lines of credit or even credit cards. But the interest rate will get steep and you can't deduct the interest on your taxes.

What can be a more workable way to get into an earthship is to first buy a conventional stick built house. You can buy a fixer-upper, improve the value quickly, giving yourself equity in that home. With adequate equity, you can then finance a lot and either a) get an equity line of credit against your original home or b) sell the original home. The proceeds from either can be used to build your earthship.

Q: How do you finance these types of homes?

A (John Willis): It depends on the borrowers situation.   Regardless of construction method, you can do a land loan up to 95% of the purchase price.  Some construction methods can be financed with conventional construction financing.  But if it's too out of the ordinary, it will probably require an equity line of credit from another home.

Q: My husband and I live in Michigan. We are looking into buying a home but I would rather build a green home. Our credit is average or just below, and like most people our age we don't have a large sum of money waiting to be spent. We need info so we can start living green NOW and not have to spend the next ten years contributing to the problem. You can understand my dilemma.

A (John Willis): The definition of ‘green' is still very broad including the definition of a ‘green' home.  And your definition of average credit may not be accurate.  Most people have more options than they think.   As a general rule, you can finance 100% of a home with a 580 score, sometimes 560.  The rate will be higher with those scores, but still respectable relative to historic averages.  If your score is over 620, you have a lot of options.  If it's over 680, you'll qualify for most programs.  With a 720 you are golden.

The question is how green can you get with conventional financing at 100%.  You can build ICF, Solar heating, passive solar, solar water heating, heat sink materials, and many others.  You can acquire recycled lumber and timbers.  There are a lot of options, but if you're thinking about an earthship, you're gonna need some cash.  You can finance up to 95% of the land, but building costs will need to come from your pocket.  These homes are generally built a piece at a time like a savings account of tires, and aluminum cans while the builders live in another structure on-site or another house.  Or, they own another property and do a cash out refinance and use the proceeds to fund their ultra green house. You can start right where you are and get a whole lot greener.

Q: I am looking to build an environmentally safe home. I would like to use solar and wind for my source of heat and elect. I also would like to use straw bale, brick or some other form of material that would help the environment. I live in Minnesota, and at present am looking for land to build this home. Could you give me some tips on building this type of home in Minnesota, and how I can get financing, and builders in this area.

A (John Willis): For lenders to include solar and/or wind in a construction loan, those power sources will probably have to be common for the area.  If they are not, those items may have to be paid for out of pocket, or drawn from an equity line on another property.  While most lenders won't look at any ‘unconventional' form of construction, there are lenders who are happy to finance strawbale construction. 

American Broker's Conduit will do it.  They are not a retail bank.  You will need to find a full service mortgage broker in your area who can broker to ‘ABC' or another wholesale lender who will lend on this type of house.  However, ABC only does permanent financing, not construction loans. 

National construction lenders such as IndyMac don't tend to finance ‘unusual' construction projects.  So, you're better off checking with a local broker.  You might also check with local credit unions or banks.  You want to find a ‘portfolio' lender.  That means your construction lender is lending their own money and not selling their loan to an investor, nor are they bound by the criteria of that investor.  Essentially, they have more latitude to fund whatever they want. 

You'll have an easier time getting a construction only loan with a local lender if you show them a loan commitment for the permanent financing on the finished house.  That way, the construction lender will know you can pay off the construction note upon completion.

Q: I've been surfing alternative/green/kit/owner-builder sites for years. Mostly people have to have cash to do these homes. I've begun to put my passion in my work and would like to share about BuildMax...they facilitate the owner-builder through both construction to completion and make possible a conventional 100% loan product that will finance both the land and the improvements on a conventional construction-to-perm one-time close. There is no down payment, no payments during the build, and one of our underwriters permits 2 draws per month. We supervise, by telephone, the entire construction process...we helped build 270 homes this past year. The fees are competitive and our rates comparable. We're giving the opportunity for real sweat equity and empowering home-builders/home-owners who might not otherwise be able to own homes. The website is www.buildmax.com.

A (John Willis): From what I can see on their website, it looks like a good program.  On the upside, it looks like you can get into this program with little or no cash out of your pocket.  Not sure, but it looks that way.  Often, you might have to have 20k or so in closing costs and reserves to qualify. 

I have no idea what they're like to work with.  I've seen plenty of lenders who promise the world and turn out to be a nightmare.  It happens and it can be very costly to borrowers.

I didn't see anything that said they could build anything ‘green'. 

And I'd want to give anyone who was considering this a strong warning about a.) making sure they know what they're getting into and whether they are ready for it, emotionally, financially, and otherwise.  I'd also want them to make sure they have located permanent financing before they initiate the construction loan.  Having a balloon payment come due on a construction loan, with no means of permanent financing is a great recipe for bankruptcy.   Not being paranoid, just realistic.  Building your own home can be very satisfying and very lucrative.  But it's not for everyone and certainly not for every circumstance.

Q: My wife Connie and I are committed to constructing a monolithic dome (Italy, TX) that rates an R value of 69, power it off-the-grid with solar, employee composting toilets and retire with a small low impact footprint on about 40 acres in the hills above the Brazos River just northwest of Mineral Wells, TX. Once the dome is up we will take about 2 years to finish the inside ourselves to keep costs to a minimum.

Credit rating is excellent but no one we can find is ready to lend $120,000 to put up the dome shell, purchase the solar and install the geo-thermal wells and piping for radiant heating/cooling in the slab AND let me take approximately two additional years to finish the inside myself to save approximately $80,000 on how much I need to borrow.

This is not an over night decision Connie and I have made. We have a small cabin and test bedded these concepts in it. We understand the tasks, work, and commitment we must make to make this work. If we are lucky, when finished we will have a small nature preserve (about 40 acres) to retire to and hold nature walks and educational sessions for local schools and nature interest groups in a complex area of the Western Cross Timbers Region of North Central Texas.

I need a lender that understands the green commitment people serious about low impact living have made. As Texas Master Naturalists, Connie and I are committed to community involvement and environmental monitoring to educate and inform the public about alternative living styles. Plans are to complete this project in about mid-2008, place our currently owned home property up for sale and move to the dome and use the profits generated to pay off the largest part of the loan we can, refinance the remainder if possible and reduce our payments on a short term 5-7 year notes we will be able to support on our retirement (which we have planned for).

In summary, I need a financial institution that believes in this dream, is willing to share a year's extra risk for me to finish the dome on our own (something we've done before). We are willing to provide additional information you may require to consider this proposal.

A (John Willis): I know your situation all too well.  Unfortunately there just aren't any programs designed specifically for this kind of project, but it doesn't mean it can't be financed.  The problem with the vast majority of lenders is that they sell their loans on the secondary market.  So, if they're not underwritten to Fannie Mae or Freddie Mac guidelines – or derivatives of those guidelines, accepted in advance by a secondary investor, the loan originator can't sell them.   If they can't sell them, they can't free up capital to do what they do: originate more loans. 

There is, however, another kind of lender called a ‘portfolio' lender.  Portfolio lenders do not sell their loans.  While most have a set of guidelines that they typically do not stray from, it is in fact their money and they have the ability to do with it what they want; especially, if they're a privately owned company—they don't have the same fiduciary responsibilities to their stockholders. 

Credit Unions and some local banks are portfolio lenders.  If I were going to approach such an institution, I would come prepared with a standard 1003 Loan application and all my financials, but also a proposal:  You finance the project in exchange for our full cooperation in a PR campaign.  Perhaps you could convince the lender that they will make enough money on the positive press, that any additional risk, real or perceived, on the project is well worth it?

An easier way, if you are in the position to do so, is to leverage other properties.  Given, you can probably get a lot loan, up to 95% on the land itself.  If you already own it, you may be able to take 90% of the land's cash value out, to help with construction.   If you own other properties, you can take 100% of the value out. 

If you're able to leverage other properties to build your retirement home just make very sure that you either have a.) no payments on your retirement home when you are done (excluding a lot loan), or b.) a commitment for permanent financing.   If you do maintain a lot loan, make sure you understand the terms.  Many if not most lot loans have fairly short terms.  Very few amortize for a full thirty years because lenders assume they will be built on and refinanced with traditional mortgage financing. 

My hope is that eventually, lender's will have programs specifically for this kind of project.  My hope is that State or local governments would provide lenders a tax credit for financing low-impact homes.  Until then, we just have to be creative. 

Q: We are in the process of starting to rebuild our home that was destroyed by fire last summer. We have been informed by our insurance company that they will pay a maximum of $292,000 to rebuild our existing home. We have a 15 year mortgage at 4.65% and we are in year two of that mortgage. We do not want to jeopardize that mortgage, so we are not interested in refinancing. The home that we are planning to build will include 122 square foot addition, raised roof structure to accommodate the addition and the use of green, sustainable products where we can afford them. We will have a solar system installed for electrical. We are trying to figure out how to finance the additional costs over what the insurance will pay: approximately $150,000. What kinds of loans are available and what would you suggest we go for?

A (John Willis): This is a very interesting scenario.  Honestly, I've never thought a great deal about what happens to a mortgage should the house be severely fire damaged.  Clearly that's why mortgage companies insist on insurance and will force-place a policy if it should lapse. 

Your financing options depends on the value of the house.  Once it is rebuilt (not including the addition you're planning) will you have $150,000 or more in equity?  If so, you could do your reconstruction first.  Once that's complete, you could get an appraisal, showing the 150k plus in equity and get a 2 nd mortgage.  I agree, you may not want to touch your very low 4.65% note. 

I would recommend getting a fixed or ‘closed in' second.  If you got an equity line of credit, or HELOC, it's going to be adjustable.  Most are based on the Prime Rate and I don't think that's going to go down anytime soon. 

The reason you have to do this in two steps is that while your house is under construction you won't be able to borrow against it.  So, it has to be repaired and finaled to be lendable again. 

If you don't have the 150k in equity, you're pretty much stuck with a construction loan.  The construction loan will allow you to base the Loan to Value on the finished house, including the addition.  They use a ‘subject to appraisal' which means they appraise the property subject to the completion of your addition. 

Or, if you wanted to do the rebuild and addition all in one stage, you could do a one time close construction loan, but they would require paying off your low interest 15 year note.  Before you decide against that option, get a quote on a closed in second for 150k.  Then get a quote on a new 15yr note that includes your current balance and the cost of the addition.  If the blended rate between your current mortgage and a new closed in second is higher than a new 15 year fixed, you're better off to just do the one time close construction loan.  You might consider a 30 year fixed, if the payments just seem too high.  You can always accelerate payments if your finances allow it. 

Q: I am a loan officer and am seeking advise on locating a national lender who will finance alternative building styles. Do you have any suggestions ?

A (John Willis): American Broker's Conduit is the only large lender I'm aware of that's a bit more flexible on building systems.  Otherwise, you may have to look at a national portfolio lender or local portfolio lender.

Q: I am wanting to buy a yurt that is fully permitted and with foundation post and beam into the land. It is in Hawaii but I am having trouble getting financed for this unique kind of home? Any referrals? I wanted a home loan for 30 yr term.

A: (Kelly) Interestingly, I just finished reading a marvelous new book (Yurts: Living in the Round) about yurts written by Becky Kemery (she also has a website: http://www.yurtinfo.org), where she discusses the problems of getting conventional financing on yurts. Because they are generally portable structures without a conventional foundation, banks are wary of loaning money on something that might walk away. She suggests approaching the loan officer with the term "non-conforming house" as opposed to yurt, and have lots of nice pictures to show how solid it appears.