Steps in Financing Modular Homes and Mansions
When you buy a modular home or a modular mansion, you have options from which you can pay for it. If you are fortunate enough to have money saved or assets that you can sell, you can use private family money. Most of us are not that lucky and we go with borrowing money from either a bank, mortgage company, credit union, modular factory or general contractor financing. When you need to secure financing from any bank or company, there are certain steps that you will be required to follow to gain access to the funds.
Step 1: Obtain a Pre-qualification Estimate
Before you do anything else, you need to come up with a rough estimate for the amount of money that you'll have with which to buy your new house. Your bank can easily give you an idea of what they will loan you, along with the interest rate and fees schedule, if you give them permission to pull your credit history and look at your financial statements. The good news is that such a ballpark estimate is not binding on either you or the bank in question.
Step 2: Shop Around for Loan Interest Rates
While it takes some time to do, you should try to obtain quotes from minimally three separate banks. This will give you a true picture of the best rates you are able to secure on a loan. It may not sound like much, but even a slight interest rate differential like a few hundredths of a percentage point can translate to literally thousands of dollars or more during the loan term.
Step 3: Make Your Application
Now that you've finished the planning and have decided on which land you'll build your new modular home, it's time to make a loan application with the bank you chose. The bank will require several things from you, including:
- W-2's from your employer for the last two to three years
- Manufacturer contract on the house you are buying
- Federal income tax returns
- IRS Form 4506-T
- Proof of current employment
- A specific and detailed statement of both debts and assets
- Five years of work history
- Most recent pay stubs or CPA proof of income if you are self-employed
- Account numbers and lien holders on outstanding loans
- Notarized deed copy of the land you're going to build on. Seller should provide a letter of intent of sale with detailed information if you are buying the land.
- Certified bank check to pay the fees for application and credit check
Step 4: Receive Approval
Assuming that your application meets their minimum underwriting standards, the bank will send you a letter of commitment to communicate their approval. This letter is critical as the seller or manufacturer or both will want to see it before they sign off on the final contract with you. The tricky part is that you need your contract on the house to receive bank approval, but without bank-approved financing, you can't get a contract on the house from the manufacturer and seller of the land. The compromise required is that one party or the other will have to give you an intent to approve or unofficial approval so that the other party will be satisfied that you are a sound risk. Neither banks nor modular home manufacturers want to stick their proverbial necks out for you first.
Step 5: Arrange a Disbursement Schedule
You will have to display some organizational skills on this step. After you have the final approvals in hand, you are expected to develop a timeline to pay the property seller, the general contractor, the manufacturer of the modular home, and all other related costs to building the house. With each completed milestone, expect the bank to require proof of completion. They will satisfy this requirement with physical inspections typically. Only after the step has been completed to the level of satisfaction that the bank requires will they release that stage's payment.
Step 6: Close on Your Loan to Build the House
The heroic moment of the whole process is when you finally close on your modular home loan. This will happen after you have set and received approval for your disbursement schedule, and after all other concerns have been dealt with satisfactorily (such as obtaining your building permit). The bank representative will then sit down with you and present the final documents for signatures. You pay your closing costs, and then the fun begins as you watch the house being built. At this point you'll have to pay interest-only payments to the bank each month. No payments against principal actually occur until the house is finished.
Step 7: Convert Your Construction Loan to a Traditional MortgageAfter construction finishes, the bank inspects the house and appraises it. The loan then converts to a tradition mortgage once they sign off. Your regular monthly payments against both principal and interest begin at this point.
You have many options to borrow money for modular home construction. Be smart and compare the different rates and fees for the construction loans & permanent home mortgages to get the best deal for your new home.