Financing, Down Payment, and General Types of Home Loans
Financing a manufactured home, mobile home, or modular home is much different than financing a residential home. Here are some basic guidelines when applying for a loan for your new home. Keep in mind that every lender has advantages and disadvantages. It’s kind of like a long stem rose. There is a wonderful blossom, but there are also some thorns on the stem. Here are a few basic things that should help you along the way. Keep in mind our home consultants are not Licensed Mortgage Loan Originators. But part of their job is to help assemble the information that you need to make the application and then help the lender in collecting any other documents they may request to evaluate the application.
Financing a Manufactured Home
- Credit Scores – One of the two most common questions is “What kind of credit score do I need?” Great question. Most lenders have minimum scores that they are looking for. There are lenders who can work with bruised credit that is below 600 while others are looking for scores above 620 to 640. When you talk with your home consultant it’s a good to have an idea of where your scores are. You can get a free credit report from annualcreditreport.com. Sometimes lower credit scores can be overcome by increasing the amount of down payment.
- Down Payment – Down payments will depend on the type of loan and your overall credit profile. There are zero down programs such as VA, USDA, and even a few available from non-government backed sources. Typically, you should prepare for a minimum of 5% to start with. The down payment total won’t be called for until closing so you’ll have some time to save a bit more.
There are Two General Types of Loans
- Government backed loans – FHA, VA, USDA
- Non-Conforming loans – basically function similar to private banks
- Land/home – use of land in the transaction
- Home only or Chattel loans – only consider the valuation of the home as collateral.
Government-insured loans, like HUD-backed FHA loans and VA loans, are financing options for manufactured homes or modular homes. Banks and home manufacturers offer more traditional chattel loans and mortgages to those of you home shopping as well.
Using Land vs Home only Transactions
You’ll come from one of two towns: Got Land or Need Land.
- If you own land – Owning land can help secure a traditional mortgage and lower interest rates. In fact, often times lenders can use the land equity to off-set cash down payment requirements. We’ve done several loans with Zero Cash Down when the land equity and credit were acceptable to the lenders.
- If you need land – If you don’t have land, most dealerships can help you in locating a suitable homesite. Are you looking for private land or would it more beneficial for you to consider a leased land option? Depending on the type of loan package, you may be able to include the land purchase into your home package.
Using leased land for your new home is a viable consideration. Most communities provide favorable sites with amenities that may include swimming pools, playgrounds, yard maintenance, garbage service, and city sewer services.
You can also do “home only” loans or chattel. While these loans typically have shorter loan lengths, and a bit higher interest rates, they can be a good choice because they also have lower closing costs. They keep the land “out of the deal” and only involve the land as collateral.
- Make a “good faith deposit” – Statistics show that presenting a good faith deposit increases the likelihood of getting a favorable approval. The deposit shows your good intentions to make the purchase and also demonstrates to the lender that you have part of if not all of the down payment on hand. Actual down payment requirements are determined by the lender based on your credit profile and the type of loan you are trying for. There are some “zero down” loans available but it’s still good to do a deposit to show good faith. That deposit can either be refunded at closing or can be applied to the loan at closing, which ever you choose. Check with your dealership and make sure that the deposit is 100% refundable if the loan is not approved or if you change your mind.
- Provide income – When you fill out the application provide accurate information on your income, detailing all sources. The lenders are looking for “pre-tax” figures. If you are paid overtime you will list that amount separately from your “regular” pay. Usually, to be counted, overtime must have been earned for at least the 2 years prior.
- Supply all documentation needed – Documentation is KING: Lenders will want you to provide different documentation. Expect to provide your last 2 years of w2s, 2 months worth of pay stubs, 3-months worth of bank records, copies of SSI awards letters or pensions, and a copy of the deed or land lease. Additionally, the bank may ask you to provide other documents as well. While this may seem burdensome… it is an essential part of buying a home.
- Shop lenders – Credit scores are usually one affected once if you make multiple applications within a 30 day period. I usually suggest that you approach at least 2 different lenders so you can get a comparison of offers. Things to consider when you review your lender response are term on the loan, interest rate, and fees. Sometimes it makes more sense to look at loan offers with lower loan fees even if the rate is higher.
- Determine your payment – I know a common question, “What will my payment be?” You can use a general rule of thumb when estimating what your payment will be. Your payment amount will be a result of 3 factors.
- Credit scores
- Amount of down payment
- Term on the loan – how long is the loan for?
Here’s a calculator that can help in determining your payment.
Again, be mentally prepared to provide additional documentation that the lender may require. Understand that your home consultant is not the bank. They are there to help expedite the process. Your home consultant can help you in the details of each of these steps. In the next part of this series, Manufactured Home Buying: Part 3, we talk about home site preparation and the construction process.
Additional Educational Resources
Still Have Questions?
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