Modular Home Financing Options
ModularHomes.com can connect you with several qualified lenders that offer a range of modular home loans. This includes financing programs for applicants who have an excellent credit history or various loan options for buyers that may have had some credit challenges in the past. You can use the following information to get a better idea of what to expect when it comes to modular home financing.
Modular home loans are unique because modular homes are classified exactly the same as traditional stick-built homes. As a result, they qualify for traditional loan options, such as FHA, VA, or USDA loans. In many cases, a construction loan is required for the purchase of a new modular prefab home. A construction loan provides for construction dispersement draws to contractors and builders upon completion. In short, there are several key factors to keep in mind when obtaining financing for your new modular home, but rest assured that your lender can walk you through the entire process and explain everything along the way.
FHA Loans are insured by the FHA and are the best choice for borrowers who don’t have a large down payment or less than perfect credit. If you have a higher debt to income ratio, we can help you find a lender that will assist you with financing. This is usually the case if you have other strong compensating factors to help justify your ability to apply a higher percentage of your monthly income toward the housing payment. To qualify for FHA financing, your prefab home must have been built after June 15, 1976 and be permanently fixed to a foundation. If you’re buying a modular home that isn’t currently affixed to a foundation, don’t worry! Many lenders can structure a loan for you that will allow the foundation to be upgraded to FHA standards. Some of the perks of FHA loans include a low 3.5% down payment, 30 year loan terms, and low interest rates.
VA loans are modular home loans designed for veterans. Many lenders offer these loans to qualifying veterans with a credit score of about 620 or higher. Additionally, some VA loans can cover 100% of the loan cost, which means $0 down payment. Keep in mind that some VA modular home loans require a VA funding fee that can be financed. However, other lenders offer VA loans that are exempt from monthly mortgage insurance fees.
The US Department of Agriculture (USDA) offers a type of modular home loan similar to the FHA loan called the USDA loan. This loan is meant for rural development and is guaranteed by USDA, which allows lenders to offer more favorable terms. Also, USDA loans do not have a down payment requirement and will loan up to 102% of the home’s value. USDA’s mission with its Rural Development program is to improve the quality of life in rural communities. Therefore, they offer these loans for housing and community facilities. In order to qualify for a USDA modular home loan, the home must be located within the boundary area of a rural community as defined by USDA.
Construction to Perm Loans
Construction loans are combined with either an FHA or conventional (permanent) loan. The construction loan terms are in place during the construction period, which is usually 4-6 months. Then, these are changed to the terms of the FHA or conventional loan once the construction is done. As a result, modular construction lenders will either do a one time or two time close. A one time close requires only one closing, and when construction completes, the terms are modified to the permanent loan. A two time close requires closings on both the construction loan and the permanent loan. However, this can result in higher costs due to multiple closings. Finally, the proceeds of the construction loan are paid out in draws to the contractor/builder as the project progresses. The borrower usually pays interest-only payments on whatever draws the contractor or builder has taken.
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