Planning Makes Perfect: 7 Financial Strategies to Making Your Dream Home a Reality

I met Steven Covey, the author of Seven Habits of Highly Successful People, at an event in 1999. We chatted one on one for about an hour. His most memorable words to me were, “Jim, almost everything in life can be accomplished with just seven simple strategies, rules or habits.” Thanks to Steven Covey, we have developed these strategies from our experience providing construction-to-permanent mortgages for thousands of customers building a log home. We’ve seen the power of these strategies help people successfully build, afford and enjoy their new log home. Apply them as you advance along the path to building your new log home.

1. Plan for Success

A written plan greatly increases the likelihood of a successful project. Building a log home involves site planning, site acquisition, dealer and manufacturer investigation, financial planning, construction oversight, contractor management, problem solving during construction, governmental approvals, certificate of occupancy and many other items. Our most successful customers strategize their journey of building a new log home with a detailed plan. The plan must be in writing. It should be developed over time. 

Many customers use a planning guide available from log-home dealers or lenders. Some use a “dream board” as a starting point. A large piece of poster board is the central point to paste magazine pictures of desirable log homes, interior layouts and other features. A section of the poster board is reserved for “Questions to Ask Builder or Lender,” and another section is set up for a to-do list for the major steps. The dream board collects ideas, thoughts and questions that can be a great starting point for a plan for success.

2. Set a Firm Budget.

A firm budget provides you the tool to manage your log-home construction with discipline and financial wisdom. Set a firm budget for your mortgage AND a firm budget for your log-home construction. Speak with a lender to determine your financial options. How much can you afford? How and when will you sell your existing home? What type of construction financing makes sense for you? These questions lead to a firm budget for your mortgage. Select a lender who has experience with log-home construction. There are several national and regional lenders that specialize in log-home lending. A good loan officer can help you with your mortgage and help ensure your construction budget makes sense. Highly successful customers work with a direct lender (not a mortgage broker) that specializes in log-home finance. Successful customers benefit from the experience and counseling of a loan officer that works in the log-home construction market every day.

You must also work with the dealer and lender to develop a construction budget. Highly successful customers invest a lot of time developing their construction budget. The more detailed the budget, the better the outcome. Building a log home is likely the largest single project you will undertake. It’s also the largest financial investment you will make. The carpenter’s adage “measure twice, cut once” applies here. Make sure the construction budget covers everything in your plan. Identify all the extras that fit into your budget and exclude those that don’t. Change orders and add-ons that you didn’t budget for can wreck your mortgage budget and threaten your success.

3. Expect the Unexpected

Your firm budget needs to have room for surprises. Some surprises are out of your control. You hit rock when working on the foundation. A long period of bad weather slows your construction. A subcontractor fails to come through, and you have to replace the sub with a higher bid. Your budget needs a contingency reserve to cover these unexpected events. Without the contingency, your mortgage will not have room for these unexpected events. This is the biggest single area where our mortgage customers experience trouble. Unplanned expenses strain your budget and can threaten your success.

A contingency should NEVER be used for extras. Every project has a few unexpected overruns or surprises. The contingency reserve is last resort for dealing with these issues. A poorly planned project burns through the contingency early on, and then trouble ensues. Highly successful customers have some contingency remaining at the end of their construction and use it to reduce their mortgage or even splurge on a few extras as a reward for a project well planned.

4. Start an “After I’m Done List”

You’ve completed your plan for success, and have an approved mortgage and well-planned construction budget. Take a small piece of poster board and label it “After I’m Done List.” Every time you think of purchasing furniture, finish items or any other expenditure that’s not in your budget, add it to the list. Do not order it or buy it until you’ve completed construction.

The “After I’m Done List” protects you from impulse buying. It protects your mortgage and construction budget. Highly successful customers wait until their home is done before spending money on other expenditures on the “After I’m Done List.” The list protects you from running out of money in your construction budget before your home is done. The list also lets you see all the things competing for your dollars and helps you prioritize and plan for purchasing those items once you’ve successfully completed your log home.

5. Keep Pace

Your construction and mortgage budget assumes a specific period for construction. Keep your project on track. Respond quickly to builder questions. Hold the builder and subs to their time lines. Call them immediately if the project starts to fall behind. Make sure the builder understands that you expect the home done when promised. You’ll be paying interest on your construction loan during this period.

Every day of delay costs you extra money. If you’ve locked your permanent mortgage rate, you must finish the home and get the certificate of occupancy before the lock expires, or you may lose your favorable rate. Highly successful customers have the construction budget broken down by dollars AND by time for completion of each item. They work closely with their builder to ensure that the project stays on time and on budget.

6. Hold Off on Major Expenditures

Highly successful customers never make major purchases prior to finishing and moving into their log home. Your lender will counsel you not to make any major purchases from the time of application until your new log home is done. There are two reasons for this. First, you use up your cash and credit capacity that may be required to finish your log home.

Second, you increase your financial stress at a time when you are making what is most likely the largest investment of your life. Never buy a car, go on an expensive vacation, or buy major electronics, furniture or anything else from the time you make a mortgage application until you move in and get your permanent mortgage finalized. And never change jobs, start a business or change your method of being paid unless you get your lender’s consent.

7. Lock Up Your Credit Cards

Highly successful customers lock up their credit cards in a safe deposit box (or cut up all but one of them if they are short on financial discipline) after they make their mortgage application. You’ll be using a lot of your savings and monthly income to build your new log home. You will be paying closing costs. You’ll be making the construction interest payments. You’ll spend some cash on incidentals during the construction process. Running up the balances on your credit cards is the most financially damaging thing you can do. First, you will pay 15 to 25 percent interest rates. Second, you’ll damage your credit score, and that can prevent you from getting a permanent mortgage, or it may increase the interest rate on your permanent mortgage.

A large segment of your credit score is based on how much usage you have on your credit cards compared to the available credit limit. Push the balance more than halfway above your credit limit, and your credit score starts to fall. Maxing out your credit cards is the equivalent of financial suicide. You significantly reduce your credit score and your financial options. To sum up, these seven strategies can help you successfully build, afford and enjoy the log home of your dreams. The time spent planning, budgeting and developing your construction project will be rewarded many times over when you’re sitting in your new log home, enjoying time with family and friends and hearing their admiring words about your beautiful home.  

Jim Deitch is a founder and CEO of American Home Bank and American Log Mortgage of Mountville, Pennsylvania. He frequently writes and speaks about new-home financing.