Perhaps the most commonly asked question about straw bale construction is: “How do I finance it?” Unfortunately, the answer hasn’t gotten much easier over the years as straw bale construction is still considered alternative to the mainstream and, as we all know, banks are not big fans of taking risks on alternative construction techniques. That said, there are some things that you can do to improve your efforts and increase your chance of receiving funding.
Archive for the ‘Financing/Insurance’ Category
I received an email from an insurance agent in New York State who has written policies on two straw bale homes and is eager to write more. He can only write in New York, but it’s great to have him reach out in search of more homes to insure! His information is below.
Mark W. Fingar, Vice President
Commercial Lines Account Executive
Certified Insurance Counselor
1 Livingston Parkway
Hudson, NY 12534
We heard from one of our readers, Mary, this week who had been struggling to get a bank loan for her straw bale construction build. She wrote to share the great news that she had received the bank loan and we felt her idea was so creative and easy to replicate that we wanted to share her letter with you.
“Hi, Andrew. Just wanted to give you the low-down on what happened to us with our construction loan. We approached our local banker, told him it was a modified post and beam, but when we gave him the plans, they clearly said that it was a straw bale home. When the bank manager questioned me about that, I directed him to your website to educate him about this style of building, but the loan committee almost turned us down. One last ditch effort — we asked the bank manager and one of the loan officers to tour 2 existing straw bale homes of friends we have in town. They were so impressed and the loan was approved! What a testimony as to just how beautiful they are!”
Unfortunately the bank is quite small and not able to offer many loans so they asked that we not share the name of their institution; however, the strategy mentioned above is one that others can implement with their own local banks. The key is to find one where the people making lending decisions are local. A large corporate bank typically doesn’t have local representatives available to come out to do a site visit. Congrats on obtaining the loan Mary!
I am trying to compile as much information as I can about two major subjects as they relate to straw bale construction. The first is mortgages and other straw bale funding options. The second, which I will discuss in another post, is insuring a straw bale project. It’s no secret that the mortgage industry is not what it used to be. I imagine that we could have a long conversation relating to the reasons for the sudden decline in available financing; however, that’s not what I’m most interested in. What I really want to know is: how do we move forward under current conditions? I would love to hear what you know about how to make financing a straw bale project happen. Consider that the lack of straw bale lending can stop projects in their tracks and your input could be the difference between success and the abandonment of a dream.
Perhaps you recently started, or even completed, your own straw bale project. Did you get financing? Did you get a standard mortgage or did you have to get creative? What was your down payment percentage? Were you able to use local financing or did you have to shop around to a larger, more national scale market? Any and everything you can share with me is appreciated.
My goal here is to create a document to help other people learn what it takes to finance their straw bale dream. I have lots of people ask me about finding specific lenders who will loan on straw bale. I can see the importance of having an updated list of lenders available (in other words, please supply me with names and contact information for those who provided your funding as well so I can list them in the document); however, I think it’s more important to know what details are involved in finding financing no matter where you live and who is immediately available to you.
My point is simply this: if I can help teach people how to get financing in any market, then the list of those willing to provide financing will continue to grow. If we stick with the same lenders over and over again, the list will ultimately shrink as policies and personnel change as we have seen over the last few years. It’s like the old saying: give a person a fish and they will have a meal. Teach a person to fish and they will never go hungry.
If you have details to offer, whether it is names and contact information for lenders, or details of what it took to get financing, please email me directly (Andrew@strawbale.com) and share that information. I look forward to compiling everything I get and putting it in one place for people to use. The more recent your data, the better, by the way as I’ve found that even people I used to rely on for funding have stopped providing it in the “new” financing market. Thanks for your help!
Regardless of what you think about the insurance industry and how they help or hinder our economy, one thing is true for right now: home owner’s insurance is required in almost every scenario imaginable when building a house and living in it. Of course one can build a house with cash and choose not to insure it; however, if you plan to get any type of financing, you will be required to show proof of insurance. That’s easy when building a conventional house because insurance companies don’t think twice about insuring them. It’s harder when building anything outside of the “norm” of conventional thinking. And guess what…straw bale construction does not currently fit into the “norm.” That’s why I need your help.
My goal is to create a document that shares with people what’s necessary to get insurance for a straw bale project. What details need to be in place to make the process simple? What do agents typically ask of the homeowner during the application process? What red flags do agents and insurance companies have that are triggered in a conversation about straw bale construction?
The reality is that 90% of the straw bale homes that are denied coverage are denied not because they are more dangerous than conventional homes but because the insurance agents, underwriters, and/or the insurance companies themselves don’t understand what they are dealing with when presented with a straw bale home. They have al kinds of images in their heads about what it means to build a house out of straw and, yes, most of those images are related to the three little pigs. As unfunny as that is, it’s true.
So, here’s how you can help. If you have insurance on your straw bale home, please email me with as much detailed information as you can about how you made it happen. Send me your agent’s name and contact information, details about the application process and policy, and anything else you think would be helpful for others to know. Together we can provide people with a document that prepares them for a successful journey into the insurance world, something that has not been the norm for straw bale house owners over the years.
You can email me directly with your information (Andrew@strawbale.com). Thanks so much for sharing anything you can!
As we all know, world financial markets have taken a beating in recent years. “Taken a beating” may be an unfair statement. Perhaps “imposed a beating upon themselves” would be a better way to say it. Personally, I feel like they have created their own fall and should be responsible for their own actions, like the rest of us, but that’s another topic for another blog.
One thing I have heard more and more often recently is that banks that used to fund straw bale construction are no longer funding. Why? Because they say such projects are “too risky.” Again, it’s not green and/or alternative projects that are risky, it was the banks’ inner workings, but I digress… This unwillingness to fund green projects has put a pinch on the green market and has made it much more difficult for owner/builders to get the financing they so need to complete their homes.
I know that some of you have been able to secure financing for your straw bale projects. I also know that those who are struggling to attain financing would LOVE some guidance from those of you who have been successful. If you have a success story, can name a bank who will make loans on bale projects, or otherwise have some great advice, please post it here. We all need your help. Thanks.
Naming Names: Who Will Loan on Straw Bale Construction & How the Current Market Conditions Affect Your Chances of Getting a Loan
Obviously the real estate market has taken a huge loss around the world and things continue to look bleak. How this affects people wanting to build a straw bale home depends a lot on their local conditions.
The first and most obvious place of impact is in the mortgage industry. The industry has tightened the reigns on all of its loans and interest rates, although dropping due to governmental actions, may not be what you want once the points and other impacts are added to the loan. The biggest issue here for people wanting to build a straw bale house is the willingness of a bank to actually loan on an alternative structure. In the past, it has been difficult to find willing banks, smart enough to step into this growing niche market. Now, things are even harder. Most banks want to loan only on the things they KNOW are safe. Taking risks is not in most banks’ vocabulary right now.
So what to do? It is likely time to revert to the old ways of getting a loan for a straw bale house: Using the term “cellulose insulation.” Instead of telling banks you are building a straw bale house, tell them you are building a post and beam home with cellulose insulation. This takes away the red flag of “Straw? Are you serious?.” Unfortunately, finding a bank willing to loan on bale homes is simply going to be harder in this environment. Harder that is until banks start to see the wisdom in the construction.
One thing we are seeing around the world is rising energy costs. It is true that the cost of a barrel of oil is at a long term low right now, but overall energy costs are still climbing and will continue to do so as we move forward. A bale home is a strong answer to this situation due to the high insulation value and the use of natural, renewable materials. Banks will, hopefully, eventually start to see the wisdom in supporting such construction methods. Some banks will lead the way and others will follow. Finding those leaders may be the task of OUR time.
If you have a bank that you know of that has loaned on bale homes, please post the contact information here. I want to support these banks and drive business their way. Let’s help grow this industry together.
1. Bank of Oregon – Contact: Jeff Case – (541) 842-5602 – Email: Jeff.Case@BankofOregon.net
2. ****Your Bank Here!****
Another road block to financing a straw bale house can be finding comparable sales. There are ways to manage this hurdle as well that are simple and clear. For a full list of hurdles and how to overcome them, please review my blog post entitled “Financing and Straw Bale Construction” by searching at the top of www.strawbale.com.
It has been a while since I last gave you some tips on being your own contractor. Today, I will let you know some simple tricks of the trade for dealing with banks or mortgage firms. By the time you are ready to discuss your project with the bank, you will already have a full set of plans and an accurate price estimate and critical path. All of these things are absolutely necessary to have in place and for them to be accurate and complete. consider that the money you request and the time period in which you promise to complete the project will all be set in stone when you are done with the loan officer. Be sure you get the details right from the start or you will end up paying heavily in fees to reorganize the loan.
There is a common saying that the mortgage company “holds the key to your house.” Well, in fact they hold the whole darn house, not just the key. Whatever the scope of your project, if you get a loan for the construction of the home, you will most likely use the home itself as the collateral for the loan. That means if something goes wrong along the way and you cannot pay the mortgage, the home will go back to the bank and you will have to find somewhere else to live. Not a happy thought, but a truth that you must be aware of before you get started. Scare tactics aside, get your numbers straight. Make sure you have enough time in the loan to complete the house (realistic time frame from your critical path, not your hopes and dreams of a move in date). Know what you are signing!
The mortgage industry has changed dramatically in the last year. Most of this is as a result of failures in special loan programs offered by the banking industry which ultimately caused havoc and continues to damage the World economy to date. Banks were lending to people they probably should not have and were offering terms that quickly brought down much of the industry when things turned sour. Be sure you know what the fine print on your loan documents says. Be aware that pre-payment penalties, adjustable interest rates, and other fine line details can ruin what seems like a good mortgage just months down the road. Talk to your loan officer and ask as many questions as you possibly can. There are no stupid questions. The only thing “stupid” is signing a document you don’t fully understand.
When working with alternative construction techniques sucj as straw bale construction, the biggest roadblock will be the availability of comparable sales. These are homes in a designated area that have sold in recent months that fit the same description as your home. Things like the number of bedrooms and bathrooms, and the type of construction are used to make an assumption about the resale value of your home. This allows the banks to decide if the home is marketable should you default on the loan. The reality is, you will likely not find a bunch of straw bale homes that have recently sold ion your area. The reason for this is actually good news. People can;t find comparable sales because people who build straw bale homes, almost never move out! They are so loved, that they are not resold. This detail is actually helpful for you as you talk to your bank and/or appraiser. Make sure they know this fact. Also, let them know that any alternative house can be considered in the appraisal. This means log homes, earthen homes, and so on. That increases the pool of options they can look at.
Be sure to give your bank good details about the home without telling them more than they need to know. In other words, you don’t have to tell them that you will be using rice straw in the walls. Let them know your plans and give them detailed drawings that show you know what you are doing. Prove to them that you are on the ball and aware of all the stresses and hurdles that lie ahead. Show them you are ready and they will respond well. Keep in mind that as an owner builder, you will likely have to put down a larger deposit than if you hired a contractor to build your house, To the bank, you doing the work is actually a risk for them and so they make you pay more up front.
Finding a home insurance company willing to insure your straw bale home may be difficult or may indeed be impossible. This is not because they are not worthy of insurance but because many insurance underwriters are operating from a place of fear and ignorance. Many underwriters I have heard from have said they could not write a policy because of the risk of fire yet all of the evidence points to the FACT that SB homes are far more resistant to fire than conventional homes. Below is a link that will take you to a list of insurance companies that you may want to contact including State Farm, Farmers, Allstate, and Farm Bureau among others.
Click on the following link (http://sbregistry.greenbuilder.com/insurance.straw) to see a list of companies that can, will, and currently do provide insurance for bale homes. If you click deeper in the website, you may even find the name of an agent in your area who can help you. If all else fails, you can tell the insurance companies that you are building a post and beam home (as long as you are not building load bearing). After all, when was the last time you heard a conventional builder or home owner tell the insurance company that they were building a fiberglass insulation home? The bales are insulation, nothing more, so don’t tell the insurance company more than they need to know. Having said that, I want to promote the use of straw bales and so I always encourage owners to try and insure the home as a SB home first and only resort to the “less information module” when forced to do so. The more the insurance companies here about straw bale, the sooner they will have to stand up and notice the growing industry.
Many people ask me about financing a bale home. I work almost exclusively with a local banker here in Southern Oregon. He has integrated an excellent program and has linked it with other bank branches around the United States. He can therefore fund Straw Bale homes in just about every state in the Union!
He works directly as a loan officer at The Bank of Oregon. He researched it, developed it, and is now selling it to many straw bale builders and home owners. If you are looking for funding, I suggest you call him directly. His name is Jeff Case and his phone number is (541) 842-5602. I hope to have an interview with him on the site some day soon.