Modular Home Loans

If you are building a modular home on your land you will probably need to take out a modular home loan (unless you are lucky enough to be able to pay for your house in cash). In this case a modular home loan is different from a typical mortgage. Most likely you are working with a builder who is working with a modular home manufacturer. Your modular home loan will basically be like a construction loan you would get if you were building a custom stick built home on your land. There will be a schedule of payments agreed upon by the bank in which money will be made available to the builder after certain milestones have been met in the completion of the house. The builder will receive his final payment after the house has been completed and inspected. Once the house is completed, the loan can be converted into a traditional mortgage for the buyer. A term you will see used for these loans is "Construction to Mortgage" .

When looking for a lender for a modular home loan it is advisable to find an agent that has some experience in modular home loans. For one thing, there are still some lenders that are unclear on the difference between a modular home, manufactured home, or mobile home. I spend hours on the internet reading about modular homes and am always amazed at the number of people in the mortgage or real estate profession that use the terms modular, manufactured, and trailer interchangeably. I will say that overall, many more agents have become aware of the difference and even point out to their peers that they have worked with modular homes and have found many to be superior to stick built homes. So even if you do run across a lender that is not familiar with modular homes or modular home loans you should not be discouraged. There are plenty of qualified lenders that are very knowledgeable and would love to have your business.

One unique thing about modular home loans which makes it important to have a lender that has experience in this type of loan is that the payment schedule must include a payment to the manufacturer for the total amount of the home at the time it is delivered to the home site. This is only a portion of your total cost, but generally the manufacturer will not release the house to be set on the foundation until it is paid for in full. As long as the bank is aware of this and has provided for it in the payment schedule this should not pose any problems. As I said, there are many banks that have extensive experience dealing with modular home loans. Each one may be slightly different in the way they handle the draw schedule for the builder. Some seem to favor the builder more, some the home buyer. Ideally, the loan should allow payments to the builder in a timely manner so he has the money he needs to complete each step of the process, but still leave the builder with the proper incentive to finish the job on your timetable.

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)