Financing a Straw Bale Home

Written by Andrew Morrison

financing a straw bale homePerhaps 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.

Have a quality plan. Knowing that banks often think that straw bale houses are “weird,” it is very important that we don’t perpetuate that belief. If you show up to the bank with what appears to be a quickly thrown together sketch, or with little to no pre planning in hand, they will likely jump right to that conclusion. Have a professionally drafted set of construction drawings that clearly lay our your home and show the bank that you mean business. This plan will easily pay for itself  as the job moves forward too as well planned homes are always more likely to stay on budget and on time.

Know what you are asking for. Get some quotes from local builders so that you know what to expect in terms of home construction costs. Sit down and say something like: “I need a loan for $200,000 of construction costs plus a 15% contingency fund.” That will sound much more professional than “I’m not really sure what it will cost…what do you think I need?”

Use the right language. If you find that the first few banks you speak with are not open to the idea of a straw bale house, then change your approach. Talk to the bank about financing your post and beam home. Bring the cellulose insulation into the equation a little later on. Don’t wait too long though as you don’t want to waste your time or theirs.

Talk about comparable sales. A big sticking point is often the ability )or lack thereof) of the appraiser to find homes of comparable value due to the fact that there are not as many bale homes on the market and they want to compare apples to apples as much as possible. Let the bank and the appraiser know that the reason there are not a lot of second hand sales of bale homes is that the owners value them so highly that they do not often sell them. This is an asset, not a hinderance.

Have a reasonable down payment. Don’t expect to get the loan with nothing down. This used to be possible, but is not the norm these days. If you have a large (in the bank’s opinion) chunk of money invested in the project, the bank will feel more comfortable. It’s not easy to walk away from tens of thousands of dollars, and the bank knows that.

Owner builders are hard to finance. If you plan to build the house yourself, try to find a contractor that will sign on as your paper contractor. He or she will be on the paperwork and that will make the bank feel much more comfortable. You will have to pay the contractor for this service, but if it is the deal maker or breaker, then it is worth the money. Just roll that cost into the loan.

Be persistent in your search and remember that the upcoming 2015 International Residential Code (IRC) has a straw bale section in it. This will help with many things like permitting, financing and insurance. Take advantage of that and bring it to the bank. Show them that this is not some hair brained idea, but a nationally accepted form of construction.

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16 Responses

  1. In Texas you are required to have a Contractor of Record otherwise the lender can not be in the first position.
    In other words, the lender will lend you the money and you will pay it back but first you must pass your rights to the Contractor of Record, who passes his rights to the lender.
    Don’t try it in Texas without a Contractor of Record.
    You can be your Contractor but many Cities are now requiring you to have lived at your place 6 months before you are eligible. A silly rule, and to me unconstitutional. Good Luck and Good Building…..

  2. We are lucky we were able to get financing for our strawbale home before the housing crash so it was much easier than it is now. But for years afterward we wanted to refinance to take advantage of the lower rates but were afraid we would be turned down because my original mortage broker flat out told me they would never finance strawbale now. I finally bit the bullet and was willing to risk losing the appraisal fee and applied with another bank (USAA) and got approved. It may be because our appraiser acknowledged in his report that there are lots of strawbale homes in the area, they are appropriate for our cold climate because of their energy efficiency and they are widely accepted here. When we first built though, there weren’t a lot of SB homes and the appraiser we had for that loan used log homes as comps. It may be worthwhile if you live in a small community where there are only a handful of appraisers to try and educate them about strawbale just as we push to educate our code officials and banks about the benefits of SB. Ultimately the bank will rely heavily on that appraisal to approve your loan. However, as final parting thought – if I had it to do all over again, I would have built less house so that I could have gone without a mortgage. If you do go for financing, try and go with local or specialty banks or credit unions that you have a long term relationship with. In my experiences, it is easier to convince them than a big mega-bank and they value their good customers more so are more willing to give you the time of day if you’ve been a good customer.

  3. I think hiring a contractor for limited support can be a huge asset, granted you find the right one. A good contractor with an open mind toward alternative building methods can bring a wealth of knowledge as well as a great way to find good subs. I have helped several “DIY” clients and they always say it would have been difficult if not impossible without my help.

  4. Andrew, good article on financing a straw bale home. At the end it mentions getting a paper contractor. Since I am a contractor and my name will be on the permit most likely for the bank, besides getting paid I personally would have to make part of the deal inspections of the project as it progressed. This would insure that I am not liable for shoddy work. Just a comment but a good article that I will keep in my files. Thanks and blessed bailing to you!

  5. Absolutely true Patrick. Thanks for pointing that out and sorry I missed it in the article. That is paramount to the success of the project as no contractor would want to be on the hook for someone else’s poor work. Thanks for adding that.

  6. I have an approved plan by our county building officials and an engineers letter approving the construction process etc. I have a realistic budget for construction and was only asking for financing of half the construction costs but I am unable to find any financing whatsoever in the State of Washington. In fact a locally built straw bale home was recently listed with a local real estate broker but was taken off the market because they could not find a lender. There were interested buyers but no financing available. Basically the banks are afraid they will be stuck with a ‘unusual’ product and not be able to recover their investment. They are too lazy to work with anyone to even develop a value of the straw bale home even though straw bale homes are covered in the real estate appraisal guide. I’ve had to give up my plans and go to standard framing in order to keep my project going. I don’t have the time to keep looking for financing and even if I could finish my straw bale home with cash out of pocket I may not be able to sell it in my later years if I need to move.

  7. That’s totally crazy! I have worked with several people building straw bale homes in Washington over the years and am currently working with a couple on Whidbey Island. I know of at least two banks personally in Seattle that funds straw bale homes, or at least used to: Wells Fargo and Chase Bank. Try contacting Sovann Kang at Chase as he was really excited about funding straw bale in Washington the last time I spoke with him. Like I say, I am surprised that you can’t find anyone to finance the homw Dan. I’m really sorry that it came to that for you.

  8. After 20 years of home ownership in Los Angeles, i am embarking on the next phase…divorce, being bought out of my home and onwards to my dream Strawbale home on a small acreage….I am terrified yet excited and sure of the vision at the same time. I am only now testing the waters and seeing where I should begin….I have one of my children at home still so I am not wanting to build too far away from Los Angeles…need to spend half the week in LA still but planning a retreat…I am zeroing in on Central valley and north county San Diego, as it looks like there are less restrictions…good idea??

  9. Hi Tanya. I love the honesty of your post. Good for you to step into this new stage with power and grace. As far as whether your plans are a good idea, that is hard to say. I think that is more about what feels right for you. The areas you note would surely be a good option as those parts of California are familiar with straw bale construction. Wishing you great success and joy.

  10. I hear LA has been slower to pick up on permits of straw bale homes, which is where I want to build. Have you worked here before? Can you share tips on experience, lending options or willing lenders in this area? And are there any certified builders you’d recommend here? The closest I’ve found is San Diego, which is still too far.

    Thank you!

  11. I recommend you connect with the folks at CASBA (the California Straw Builders Association) as they will be much more able to answer California specific questions. They are awesome people too, so a good group to be connected with anyway.

  12. Andrew, we had a really great time learning about straw bale building on Whidbey. we are looking to build in Idaho, but are having difficulty with finding banks willing to work with anyone for straw bale. Any suggestions for lenders there?

  13. That can be annoyingly tough. One thing I recommend is making sure that the banks know that the type of home you’re planning to build is one that is an approved technique in the 2015 International Residential Code (IRC) and not something you made up on your own. There’s no reason why they shouldn’t cover an IRC approved home. If you can’t make that work, try getting a loan on a post and beam home with cellulose insulation. All true, just avoids using the name straw bale. Just be sure to check that there are no specific riders that make using bales illegal. It’s so crazy that we still have to fight the banks on this. There’s nothing weird about building with bales. It’s viable and approved!

  14. I would like to learn of anyone in New Mexico who has successfully refinanced a strawbale house. I have been rejected several times.

  15. Anyone in Colorado financed a strawbale house? Looking to buy one but not sure if they will finance it .

  16. If you find the right bank, they will finance it. It’s important to let them know that bale homes are now included in the International Residential Code (IRC) which governs almost all residential construction in the US. This is a legitimate building technique and there is no reason to not fund a home of this type.

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