Ways to Finance Alternative Homes

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. 

Q: I have been reading up on earthbag building as well as other methods and I'm interested in the beginnings of a grassroots organization perhaps to help solve many of the issues of homelessness in the US and other places and wonder if this method could be easily adapted to not only provide many homeless people with places to live, but jobs to those willing to work. Have you any thoughts on this idea?

A: (Kelly) I agree that earthbag building has great potential to house the homeless and provide employment. Of course any building costs money, so there would need to be some funding to make this happen...and unfortunately this is not likely to come from the homeless themselves, although they might be able to help with the construction, much like what happens with Habitat for Humanity projects. Perhaps this would be a good model for doing something of this sort.

Q: I am wondering to what extent the various construction modalities mentioned on your site have been used in commercial construction, IE resorts? In the US? Mexico? Panama? Are there any sources of commercial financing that you might recommend?

A: (Gary Reed) It is necessary to confirm the availability and guidelines of each potential lending source each time a project presents itself. There are commercial sources and programs available for resort projects but most lenders are reluctant to consider financing of same in the current economic climate. You would need to have very strong support of how you would promote and attract clients upon completion and maintain an acceptable vacancy rate. The size of the project determines which lenders and programs would be a possible match for your project.

Q: We are a childless couple in our 60's and about to retire from the NE to the SW- New Mexico is our choice. Since we are not rich & have no need for a 3-4 bedroom home, but DO need a large lot, at least 3/4 acre, we are interested in building an affordable, SMALL energy- efficient home, like the ones designed by Laura & Alex Sanchez in their book, 'Adobe Houses for Today'. We are particularly interested in one of only 862 sq ft, plus a garage. How much trouble are we going to have getting financing for a house of this size in a decent development or lot close to standard power and water? Can you suggest any lenders we might talk to in the Silver City area of NM??

A: (Quentin Wilson) I don't know the Silver City scene but up here in the environs of Espanola loans on adobe homes are almost routine. I have dealt with two locally owned banks, The Valley National and the Community Bank. In both cases I start with the bank president in these small banks. One president of Valley bought an adobe home that I had built so during his tenure the bank was wide open to my ideas. Another president who likes adobe then went to the Community Bank and is still there. We even did business with the Bank of America in Espanola once.

If the rural argument can be made then you would also be eligible for Farmers Home Administration. The name has changed but the people are the same.

There are enough off the grid, off the wall, off stick built construction, off in every way types of people around Silver City. A local bank there should at least hear you out and not laugh at you.

Q: I need help in getting in contact with a broker that does construction to permanent loan for a second home in North Carolina. This home will be log and what we need the most is a lender who will take or give credit for the equity as cash for our down payment towards the loan. We have owned our land for 6 years and I can't find anyone who will allow us to use our land as a down. Any answer or guide you may have for us would be great, otherwise our dreams will come to end.

A: I would suggest that you seek a local, independent community bank in your area that does construction lending. Going through a broker or corporate bank can be a nightmare, especially on the construction part. Plus it will cost a lot more in fees due to the fact that they cant do anything themselves, such as inspections. They have to hire building inspectors or architects which can run into a lot of money. There are community banks all across the country that do this type of financing, plus you get the personal service dealing with someone local. All commercial banks will use earned equity toward the down payment on your loan. They may balk if it is unearned equity such as inflated appraisals but you don’t see much of that in today’s environment.

Q: My husband and I have fallen in love with an earth-berm home for sale up here in northern Wyoming, but we can't find conventional financing for it due to lack of comps. I was wondering if you could point us in the direction of a lender who is used to working with this sort of home.

A: I would suggest that you contact the local, independent community banks in that area. They are more likely to be able to do unconventional homes such as that rather than a large lender like Wells Fargo. Also, you might see if there is a mortgage company by the name of Affiliated Financial Group in that area. They are very helpful in doing that sort of lending.

Q: We are trying to build a "healthy house" in Tucson AZ using natural materials and no chemicals as much as possible. We are having trouble getting financing using "natural methods" of termite control instead of the chemicals. Do you know of anyone who would finance a construction loan on a home like this?

A: One option is to check with one of the local realtors and see if they know of a bank that would do what you are asking.

Q: My husband and I are trying to build a strawbale home and we are having trouble getting a construction loan. We don't own the land yet. Can we get a loan for both the lot and construction for a strawbale home? We live in Idaho, can you or do you know anyone who can help us get financed?

A: I would suggest that you contact one of your local, community banks in regard to getting your home financed. There is a company called First Mortgage Company in Colorado Springs that would look at doing your permanent financing. If you can get that arranged, then one of your local banks would probably do the construction loan for you. The larger banks do not care about doing anything on unconventional housing.

Q: We are trying to build an earth sheltered home here in Missouri. As you know from others no one wants to lend on these homes. Our home will be approx 2600 sq ft. There is a dome home down the road from us that has been there for years, and there are earth berm ones all around the area where we are going to build and still we are getting the run around. Can you help?

A: Unfortunately, Missouri is out of our lending area. The biggest thing that a bank runs into in doing a construction loan on a non-conventional home is obtaining permanent financing on it after the home is complete. Most commercial banks do not do in-house, long term mortgage financing. They have a mortgage company that they sell the loan to. One thing that you could do is to try and find a mortgage company that would look at doing your permanent financing. If a bank has a take out letter from a mortgage company, then they are more apt to do the construction loan. I don’t know where in Missouri you are but we have a branch of a mortgage company located in Rogers, AR. The name is First Mortgage Company and they are very easy to work with. You might look them up and see if they would be interested in doing the permanent.

Q: I am a single woman, living in Fairbanks, AK. I own my property and have a good job. I want to build a home using the Intrashelter Polar Domes. These are proven cold weather, energy efficient structures. Since the Polar Domes are not the usual type of homes I cannot find financing. Any help or direction?

A: Your best bet it is to try to find a local, independent lender, not one of the big banks that do cookie cutter loans. They are more apt to be flexible in their lending guidelines.

Q: My wife and I live in the eastern panhandle of West Virginia and we have decided that we want to build a strawbale home with a small organic farm on it. As we are 24 and 25 years of age we do not have a large sum of money to fork over for land and a home. Through my research I have discovered that no lender is willing to finance our project. We have also discovered that a local and privately owned bank may decide to fund our project with their own money if we can create an effective proposal. Is there any sort of funding that you may know about for the buying of land and the building of such a structure and growing an organic farm?

A: (Kelly) I suggest that you work hard to create an effective proposal for your local bank, as the national ones are not likely to fund your project...as you have found out. You might get some assistance from someone in your area who has succeeded in going this route with that particular bank.

Comment: I just spoke with a broker with Nova Home Loans in Scottsdale, AZ. He funded an Earthship! I asked if it was OK to pass his info on to you for posting and he said yes. Jim Tulin, Office: 480-614-6409, www.NovaHomeLoans.com

Q: We would like to buy an off grid home in Drake CO. It has solar, septic and cistern. 2.6 acres Selling price $117,000 Can you help with this?

A: We have some pretty good luck being able to get financing for homes that are off the grid, but they still have some requirements. We cannot do any that has no well. The cisterns wont work. Being solar powered is okay, but not the water.

Q: I have received approval from a credit union for a partial amount (165,000) of the loan requested and need funding for the remaining 70,000. I have a cash down payment of 33% ($110,000) and the property appraises much higher than the asking price of $345,000. I have a bankruptcy from 5 years ago on our personal home with the market failure in Reno NV 2009/2010 and we do not take a substantial income from our business as we have no expenses so the personal tax returns show small income which does not qualify us for the $235,000 we requested and the property is Off grid in Idaho. Do you have any suggestions or help for us?

A: You are going to have a tough time with several things. If the property doesn't’t have a well and you are relying on a Cistern, that will be a problem on the property side. On your side of it, until the bankruptcy is seven years old, most mortgage companies will not look at it, plus if your tax returns do not show adequate income to service the debt, it will not work.

Q: My husband and I are moving to Delta Junction, AK soon. I know there are other people living in yurts in the area around Fairbanks, so it is feasible. Our goal is to find a piece of land around 10k. We want to buy a yurt that costs around 15k and put it on the land. We plan to also buy a composting toilet, tankless water heating system and build a loft inside the yurt to sleep on. We intend to buy land that already has power access, because we heard that lenders are more likely to see that favorably for a build. I guess my main questions are: With an estimate of 50k to cover absolutely everything we need (land, yurt, amenities etc) would it be wise to buy the land first with as much cash as possible, and only finance the yurt + amenities? Or is it a better idea to finance the whole kit and caboodle? Which option would be easier and get us a lower interest rate? For 50k is it better to try and get a loan or get a personal line of credit? If the answer is "get a loan", should we try for a signature loan or a home loan? My husband is a veteran and we have an excellent credit score.

A: You are better off going ahead and buying the lot and paying it down as much as possible and then roll it into a construction loan to get your Yurt in place. I would look at getting a VA real estate loan on the $50k. A bank or mortgage company would be more apt to do an unconventional loan with a VA certificate.

Q: My husband and I are interested in purchasing a monolithic dome home in the hillcountry just north of Austin Texas. It is below our price range and we have wonderful credit as well as a stable income. However, the lenders we have spoken to say that it all comes down to comps in the area. Do you have any suggestions of how to solve this problem or any specific lenders you can refer us to who are more open to lending on this type of home?

A: Comps are a problem with unconventional homes. It depends on how stringent the lender is on having the comps close and how old the sales are. You will have better luck dealing with a local, small lender who understands the area and has flexibility in policies.

Q: I would like to install a compost toilet but I cannot find a bank to give me a construction loan with that kind of toilet even though they are legal in MA. Any advice?

A: (Kelly) Well, if you need the financing, then you might go ahead and install a flush toilet, and later after it is all signed off, install the compost toilet. It is either that or further searching for a bank willing to loan with the alternative system.

Q: We need and want to build a monolithic dome. We are financially settled, have a small debt to income ratio, own the property we want to build on, have excellent credit ratings, still work and bring home roughly two thousand dollars a week. We were told to buy the plans, skin, and some building materials and that would help with the loan financing. Then we were told to get estimates, and did that too. Told then that we needed a hundred thousand for a down payment. Well we had just spent most of what we had saved for down payment trying to get done what we were told to do. No loan but have spent a lot on the dome already. the skin is in storage along with other building materials; we have contacted and got estimates from local businesses and a dome contractor. We have talked to every loaning agency in Alaska that we know of and their only comment is cannot lend because of the unconventional type of home. We have plans to make this home as environmentally friendly as possible. This is our retirement plan, when we cannot work outside of the home we can grow old gracefully together and still afford to stay in our home. Can yuou help?

A: (Shane Milne) The normal loan programs we have wouldn’t be able to finance a monolithic dome due to its uniqueness.  I would recommend private money financing, but those usually come with a balloon payment within 3-5 years, and would require a fair amount of equity (which they may have from the land that was purchased already).  The numbers would determine if private money financing would work – how much is the land worth, how much did the materials on hand cost, how much do they estimate it’ll cost to complete the home (including the cost of materials already purchased), and how much would the home be valued at afterwards.  The private money lender would need to feel comfortable with the collateral, so familiarity with Alaska’s real estate would be needed, and I could only guess that it’d be most likely that private money lender would be located within Alaska.  Finding a hard money lender isn’t as easy as it may sound, banks don’t offer them and often don’t even know of any, so I’d recommend contacting local mortgage brokers and ask if they have any hard money connections. 

Q: Hi, We live in a ferro cement underground off the grid home which is on 162 acres of private land within a federal wilderness area. We are trying to get a reverse mortgage and can't find appraisers that understand the value of solar and survival situations. Can you recommend anyone?

A: (Kelly) Appraisers generally rely on comps of houses sold in your region to establish their values. If you could find such comps then you might be able to get a local appraiser's interest. It sounds like a wonderful situation you have there.

Q: I found a property in Littleton, CO that I LOVE and am interested in purchasing, but unfortunately the lender I've been working with won't consider lending on this particular property because it is off grid. It has solar and a well, but no power source. The other concern is that it's considered a tiny house at 772 square ft. and sits on 36 acres, so unfortunately there are no comps. I have some money saved up, but not enough for a down payment and closing costs. Do you know of a lender who may take on this unconventional, high risk loan? I have an excellent credit score if that helps.

A: (Kelly) One thought I had was that you might approach this with crowd sourcing the needed funds. It seems that many projects are initiated that way these days.