Modular Home Loans
Steps to a Modular Home Loan
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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.
Floor Plans I Pricing & Cost I Design I Construction I Builders I Financing I FAQs I Modular Articles
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Floor Plans I Pricing & Cost I Design I Construction I Builders I Financing I FAQs I Modular Articles
Modular Home Builders
INSURANCE CONSIDERATIONS WHEN HAVING A MODULAR HOME CONSTRUCTED
Tod L. Bergen, CPCU, CIC
If you are planning on having a modular home constructed on your lot, there are basically two paths that you can take. You can have a general contractor erect the home or you can act as your own general contractor. For definition purposes a general contractor is someone that will construct the entire home for you. This means that you do not normally need to hire each independent tradesman/contractor to perform the excavation, electrical, carpentry, etc.
There are insurance considerations to be considered whether you hire a general contractor or you act as your own general contractor. I will outline the items of concern and how they should be addressed:
1) CERTIFICATES OF INSURANCE:
You will need to request a certificate of insurance from either your general contractor or each contractor/tradesman that you have work on your home. Contractors are very familiar with certificates of insurance and if you request one, they should be able to comply with your request. If they cannot produce a certificate of insurance I strongly suggest that you hire another contractor.
The certificate of insurance should provide the following limits of insurance:
GENERAL LIABILITY: $1,000,000 Each occurrence / $2,000,000 Aggregate.
AUTO LIABILITY: $1,000,000 Combined single limit.
EMPLOYERS LIABILITY/WORKERS COMPENSATION:
$500,000 Bodily Injury Each Accident
$500,000 Disease Limit per Employee
$500,000 Disease Limit Aggregate
UMBRELLA LIABILITY: $1,000,000 Each Occurrence
Also, the certificate should have the following wording:
The certificate holder is named as an additional insured including completed operations on the General Liability and Auto Liability. Waiver of subrogation on Auto, General Liability, and Workers Compensation/Employers Liability. Coverage for work performed by subcontractors is covered either by endorsement or “Cvaerner Wording” None of the following endorsements apply: CG 2139, CG 2149, CG 2143, CG 2142 or any equivalent
2) HOLD HARMLESS AGREEMENT:
A hold harmless agreement is a contract between you and a contractor that states that the contractor will provide legal defense and pay for damages that are caused by the contractor and for which you are sued. It also should state that you will not be held liable for any injuries sustained by the contractor’s employees or the subcontractor’s employees. A hold harmless agreement is a second line of defense if the contractor’s insurance is inadequate to protect your interests. I strongly suggest that you have an attorney or a competent insurance broker provide a hold harmless agreement for you.
3) BUILDERS RISK:
A builders risk policy is use to cover the home against physical damage while it is under construction. In addition to covering the building while under construction, a builders risk policy provides coverage for building materials while in transit to the building site, as well as materials present at the building site prior to being added to the building itself. The contractor normally provides this coverage. However, I would confirm in writing that the contractor is providing this coverage.
Once the building is completed you need to attain a regular homeowner’s policy. The normal builders risk coverage expires once the building is completed and put to its intended use.
The information provided is for general information only. It is not intended to take the place of competent legal counsel. Each situation may provide unique circumstances. Please refer to your insurance broker and/or legal counsel.
Copyright © Tod L. Bergen, CPCU, CIC