Tuesday, August 17, 2010

Financing a Modular Home

One question that mortgage lenders (and modular home builders) are asked with increasing regularity is "Is it harder to get a loan for a modular home than a "regular house?" . The short answer is "Sometimes". But it really shouldn't be. The problem lies in the amount of knowledge the homebuyer or mortgage lender has on the subject of modular homes. Sometimes the consumer is the one that is uneducated about the difference between a modular home and a mobile home so they are asking whether a loan for a trailer, which will go down in value is different than getting a loan for a permanent home, which will (hopefully) go up in value. Other times the lender is not familiar with the difference between a modular home and a mobile trailer and assume that the loan will be more difficult to obtain. If you run into a lender like this, you can either find a different lender or ask your modular home builder to educate the lender on how the loans work. So here is a very short explanation of how a loan generally works for a modular home:
First a quick refresher-A modular home is a home that conforms to all of the state and local building codes for its location and is placed on a permanent foundation. A mobile trailer is a home that conforms to HUD building codes and can be placed on a foudation but is on a frame so that it can be moved. Now back to the question of a modular home loan. When you build a new modular home on your land you will usually have a construction loan which can become a conventional mortgage once the home is completed. The loan is similar to a construction loan you would get if you were building a custom site built home except that the payouts from the bank to the builder and manufacturer are a little different. The lender will set up a draw schedule that pays the builder in increments depending on which part or what percentage of the project has been completed. One payment on the schedule is at the time the house is delivered from the factory to the land it will be placed on, the factory is generally given a payment in full for the amount that the builder is paying for the house. From that point on, the payments are made to the builder at increments agreed upon as he finishes the house. One thing to note about these loans is that depending on how the draws are set up the loan can sometimes be more beneficial to the builder than others. Although you may feel that it is better to have a loan schedule that is stricter on the release of money to the builder in my experience the best possible situation for everyone is to have a builder that you have researched and know you can trust and to have the loan set up somewhat favorable to the builder so he/she is not held up on any part of the home due to cash flow problems. (of course I am looking at it from the builder's point of view so take that for what it is worth--hey, at least I tell it like it is)

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