To finance a container home, first apply for a construction-to-permanent loan, not an ordinary mortgage or personal loan. The lender finances construction in stages and converts the balance into a regular mortgage after the house is completed.

Construction funds are normally released through scheduled payments, known as "draws," after inspections confirm that specific stages of the work have been completed. The Consumer Financial Protection Bureau explains how construction loans work.

The main challenge is convincing the bank that the finished container home will be legal, insurable and marketable. You should complete the following steps before approaching lenders.

1. Confirm That the Land Is Eligible

Obtain written confirmation from the local zoning or planning department that a shipping-container residence is permitted on the property. You should also determine the applicable requirements for setbacks, foundations, utilities, septic systems, road access and minimum home size.

The finished property may also need to comply with applicable national, state or local building standards. The U.S. Department of Housing and Urban Development provides information about minimum property standards.

2. Get Professional Building Plans

The loan application should include professional architectural drawings, structural engineering documents and foundation plans. Structural engineering is particularly important when doors, windows or large openings will be cut into the shipping containers.

3. Obtain Permits or Preliminary Approval

A bank will be reluctant to finance a design that may later be rejected by the local building department. Having approved permits, or at least written preliminary approval, can make the loan application much stronger.

4. Hire a Licensed Contractor

Many lenders will not approve a construction loan for an inexperienced owner-builder. A licensed general contractor specializing in shipping container homes should provide a construction agreement, project schedule, material specifications and an itemized budget.

5. Prepare a Complete Loan Package

The lender may require the following documents:

• The land deed or purchase contract
• Architectural and engineering plans
• Building permits
• The contractor's license and insurance information
• An itemized construction budget
• A construction schedule
• A contingency reserve
• Income and employment records
• Bank statements and asset information
• Credit and debt information

Lenders generally review the borrower's income, employment, assets, debts and credit history when deciding whether the loan can be repaid. The Consumer Financial Protection Bureau provides an overview of different home-loan options.

6. Address the Appraisal Issue Early

Container homes can be difficult to finance when there are few comparable properties nearby. The lender's appraiser must still be able to estimate the completed home's market value using suitable comparable sales and other reliable market evidence.

Fannie Mae's comparable-sales guidance explains how appraisers may use competing neighborhoods, older sales and other market data when the most similar recent sales are limited.

You should ask prospective lenders how they handle appraisals for alternative or nontraditional homes before paying application or appraisal fees.

Where to Apply

You should contact local community banks, credit unions, rural lenders and portfolio lenders. These institutions may have more flexibility than large national banks because some keep their construction loans instead of selling them on the secondary mortgage market.

When speaking with a loan officer, you can ask:

"Do you offer construction-to-permanent loans for site-built, code-compliant alternative homes?"

Assuming the description is accurate, the project may be better presented as a site-built steel residence on a permanent foundation rather than simply calling it a container home. However, your friend should always disclose the actual construction method and never misrepresent the project.

A container home is not automatically classified as a federally regulated manufactured home. The HUD manufactured-housing resources explain the separate standards that apply to manufactured homes.

Other Financing Options

For an eligible rural property, you may also want to investigate the USDA Single Close Construction-to-Permanent loan program through participating lenders. More information is available from the USDA Rural Development Single Close Construction-to-Permanent Financing fact sheet.

Other possibilities may include land equity, a home-equity loan on another property, a secured line of credit or a combination of cash and construction financing.

The strongest application will usually include good credit, stable income, land equity or a substantial down payment, additional cash reserves and a realistic contingency fund for unexpected construction costs.