Financing Your Modular Home
A new home is the largest investment most customers will ever make in their lifetime. As such, most people aren’t able to completely pay for their new home with cash on hand. When you buy a resale home (one someone has previously lived it) you typically get a mortgage loan and pay for the home you are buying at one time.
Modular Homes are treated just like a conventional stick built home by local authorities, construction lenders and mortgage companies. When you are constructing your new modular home, the loan is typically divided into two parts. A construction loan and a permanent loan. Each of these loan types are explained below.
During the construction phase, periodic draw payments are made to contractors, subcontractors, and suppliers based upon work completed. Monthly interest payments are billed to the borrower. A stand alone construction loan typically has its own separate closing costs and fees. Additionally, the construction loan may require a higher credit score to obtain vs. and standard permanent loan. If you are contemplating acting as the general contractor be clear with your lender on this point. While some lenders allow this, others may require that you obtain the services of a Professional Building Consultant or at least have a Consulting Contract with a General Contractor to assist you during the construction of your new modular home.
The permanent loan provides the financing for the finished home. It is typically a 30, 20, or 15 year mortgage. The permanent loan pays-off the construction loan at closing and will be the loan for which you will be making the payments on for your new home. It will have its own closing costs and fees separate from the construction loan.
This structure is called a ‘one-step’ or ‘single close’ loan process. It provides both the construction financing and permanent financing in a single loan. During the construction phase, periodic draw payments are made to the builder based upon work completed. Monthly interest payments are billed to the borrower. At completion, the loan modifies to a permanent loan. The construction interest rate and permanent loan rate can be locked to protect you, the buyer from increases in interest rates during construction.
The single-step structure has the following advantages:
- A single lender is used throughout the process.
- There may be local and federal tax advantages of a single close loan.
- Closing costs duplication is minimized
Please contact a Modular Home Consultant if you have any questions about construction lending for your modular home.