Modular Home Loans
Steps to a Modular Home Loan
Modular Home Construction Loans
If you have decided to build a modular home, the first step is to become prequalifed for both a construction loan and permanent mortgage to build a modular home. Most banks today offer both types of loans to finance modular homes and often they wrap the two loans together to save you money on closing costs. After land, financing is the most important element of building modular homes - period.
Cash, Construction Loans and Permanent Mortgages
The three elements to buying a modular home include: borrowed money and cash on hand. Most people need 10% or more cash to qualify for a permanent mortgage to build a modular home. The first step to building is knowing how you are going to pay for the prefab home project.
Level of Difficulty: Easy
The steps to acquiring funds to build your prefab home may seem complicated. However your mortgage banker or broker will complete most of the work for you. The hardest step is often picking up the phone, calling your banker and saying hey I want to build a modular home. Often the first step to building is the easiest.
Pre-qualified vs. Pre-Approved
Pre-qualifying for a mortgage and being pre-approved are two different. Pre-qualified states how much money you "should" be able to borrow. Pre-approved means how much money you "can" borrow to build your modular home.
Modular Home Loan Types
Fixed Rate Mortgages - Permanent Modular Home Mortgage
A fixed rate mortgage is the most secure type of mortgage if you are planning on staying in your modular home for more than seven years. Your payment will stay the same and never be adjusted - in a sense it is insurance policy against inflation. Most bank desire a minimum of a 20% down payment, a 80% loan to value and a 38% maximum debt to income ratio.
Adjustable Rate Mortgage - (ARM) - Permanent Modular Home Mortgage
The requirements for an arm are similar to a fixed rate mortgage, however the initial interest rate will be lower to qualify you for a larger loan amount due to the payment being lower. Adjustable rate mortgages are popular in during good economic times when home values are increasing and the buyer is looking to sell the home within a the time frame the mortgage is to be adjusted. We recommend you secure an adjustable rate mortgage for your modular home.
Construction Loan - Modular Home Building Loan
The construction loan will pay for your modular home to be constructed. When it comes to building a modular home there is often five draws. The first one is for site improvements and foundation. The second draw usually pays for the modular home at time of delivery of the unit. After that the your bank will pay draws as the home is finished to pay the general contractor. For details about draws, discuss with your bank their draw procedures.
What Lenders Like to See for Modular Home Loans
When you go shopping for a construction loan and permanent mortgage for your modular home, every loan officer and underwriter will be looking for the following:
A good Credit history - When applying for a modular home loan, the loan originator is looking for no bankruptcies, foreclosures, repossessions or late payments.
Seasoned Savings - The loan officer will ask to see you seasoned savings when applying for a modular home loan. Seasoned savings and the money from your modular home loan will create your building budget. Seasoned savings are important because they show the underwriter your ability to save money and your financial stability.
A Large Down Payment - Today lenders are looking for 20% down to be considered for a modular home loan. Often the equity in your modular home's building lot can be used as part of the equity stake of your mortgage. Often the banks will use the appraised value of the home rather than the cost to complete. A new modular home often has "instant" equity.
Free and Clear Title - Owning your building lot free and clear will be a major asset to acquiring a construction loan for your building project. As mentioned above, this can be considered part of your down payment to your new modular home.
Low Debt to Income Ratios - Low credit card balances shows a responsible approach to paying your obligations. If you have high credit card balances and car payments, you might not qualify for a loan. The number of open credit accounts and high limits could go against you as well in qualifying for a modular home loan.
Rent Checks - If you are a renter, bankers will often request six months of canceled rent checks to verify your "housing" payments. These checks will indicate how responsible you are paying your housing bills.
No Outstanding Lawsuits - This includes judgments and liens. A divorce is one of the worst lawsuits to be going through when building a modular home. Current law suits could kill your ability to receive a modular home loan.
Stable Employment - Lenders want to see two or more years stable employment at the same job or the same type of job. If you are self employed, banks will request a minimum of two years of professionally prepared tax statements.
Dual Income Family - When purchasing a home, a two family income is an insurance policy to some degree that the mortgage payment will be paid in the event of job loss. If there is any way that you could afford to purchase a house with only one of your salaries, you would put a smile on your bankers head. Banks are looking for financial stability when approving modular home loans.