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Financing a Modular Home

Many homebuyers considering a modular will probably be interested in a, “Construction Loan”. This type of loan allows you to build to suit. Once you are approved for a specific amount, you will be able to write checks against that account. For example the manufacturer will require a down payment to start the construction process. You will be able to purchase property if you haven’t done so. Your builder will start preparing your site and as the foundation is poured you will be able to draw from your construction loan to pay for his services. The payments you make are “interest only” payments during the construction phase based upon the outstanding balance.

Initially there are no up-front points or closing costs, though depending upon the lending institution there could be a small application fee. Only at the point that construction is finished and your house has been completed will you go through a conventional closing. At that time, you can expect to pay all the normal fees associated with a conventional mortgage including points, title insurance, etc.

Single-close: This is the most common and cost-efficient construction loan option. The single-close allows homeowners to qualify and close with one application - one set of fees - one closing - one loan. This loan provides funds that are disbursed as needed during the construction phase and then converts to a permanent, fully amortized mortgage at the time of completion. The loan requires that “interest-only” payments be made on the monies disbursed during the construction phase. Most custom builders prefer this type of loan since the buyer, not the builder, finances the cost of construction. A single-close is typically the only choice when purchasing a modular home. Many lenders offer single-close CTP loans but few specialize in it.

Double-close: This is the traditional method of construction financing that many lenders still offer today. A double-close CTP loan provides two separate loans: an interim “interest-only” construction phase loan to build the home and then a new permanent, fully amortized mortgage when the home is completed. There are two applications - two sets of fees - two closings - two loans. There are few advantages to this loan type simply because it is more expensive than a single-close CTP loan.

Construction End-loan: A construction end-loan is simply a permanent mortgage that does not have a construction phase feature. It provides the buyer a traditional mortgage to purchase a completed new construction home. This option typically applies in subdivisions, condominiums and planned unit developments where the builder or developer has obtained the construction financing to complete the project and the buyer simply needs to obtain an end loan.

There are other construction category loans available for specific needs. A Lot Loan for example is designed to help homebuyers purchase a building lot. A Bridge Loan allows you to access equity in your current home to help fund your new building project.


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