Modular Homes Financing

14 Replies

I am looking for conventional financing options for modular homes. I am referring to a factory built home that is set on a permanent foundation. In some scenarios we are considering building the roofs on site (this will give us more roof line options) Concrete drive, sidewalk, covered porch and garage/carport will all be included.

I have asked two local banks and their immediate answer was no. They said they didn’t have any investors that would buy the loan. They did however offer 15 year in house options. My goal is to lock down 30 year fixed rate deals.

I feel like there is confusion surrounding the terminology.

One option that I am considering is using private equity to build it, then doing a cash-out refi after everything is complete and tenants move in. IMO no one would even know it was a modular home...

Any thoughts/advice on this subject would be much appreciated!

Thanks

@Scott Baker , after they are built nobody needs to know they are modular. The standards for construction of modular homes are the sale as a stick built home built onsite.

What is your goal with these homes? If you are going to sell them then the 15 year in-house portfolio type loan from a local bank should work.

If you plan to rent them out, then private money loans might be your best option. 

@Scott Baker , no I have not built any YET! lol.

I have been thinking about doing the same thing because I know I can pick up occasional build-able lots for next to nothing.

I do BRRRR now, but because I am very hands-on with it I am limited to how fast I get rehabs done. So, I feel as though if I did the occassional build-to-rent with modulars it would be a good way to increase my deal-flow because the modular builds would not require me to be as actively involved day to day.

@Scott Baker when you say “modular” how do you define it? As a real estate agent here in Wisconsin I have come across two transactions in my career having to get financing for a “modular” hoMe and it was difficult.

The modular that is referred to up here has metal beams as floor joists and the house is actually stamped with a tag! It sounds like yours may be a little different and actually stick built completely?

@Mike Higgins This drives home my point that there is lots of confusion in the industry regarding "modular" homes. I am a custom home builder, so the modular side is new territory for me. I recently toured the factory where these mods are being built. What I am referring to is construction that is just like a stick built house. When the house arrives at the site it is on a steel trailer, but that is only for transportation. After everything is installed/complete, most people will never know it's any different from the average stick built house. 

 I actually talked with an appraiser friend this morning regarding this project. Sounds like the best option is to do the project in cash and then cash out refi after everything is complete and the tenant moves in. Unless someone tells the appraiser it is "modular" he will not know. BUT, if he/she does know about it they will have to disclose it to the lender. From what I know currently, that would knock me out of conventional financing. 

Here is cool article regarding Modular Homes. https://thelendersnetwork.com/...

@Scott Baker Modular home is treated exactly the same as a single family home.  Period.  

Manufactured homes are a different story.  They can be more difficult to finance.  Typically you can identify a manufactured home if you recognize the following 

- there is a HUD tag similar to a license plate affixed to the home. Usually there is a tag on the exterior of the home and the interior. Usually in a closet or cabinet

- There is skirting around the bottom of home's exterior

- Typically manufactured homes are built on a steel chasis

- Often times at the purchase you will pay sales tax

The confusion arises because consumers and a lot of folks in real estate use these terms interchangeably.  An appraiser disclosing that a home was a modular should not disqualify you for conventional financing. 

Originally posted by @Eric Veronica :

@Scott Baker Modular home is treated exactly the same as a single family home.  Period.  

Manufactured homes are a different story.  They can be more difficult to finance.  Typically you can identify a manufactured home if you recognize the following 

- there is a HUD tag similar to a license plate affixed to the home. Usually there is a tag on the exterior of the home and the interior. Usually in a closet or cabinet

- There is skirting around the bottom of home's exterior

- Typically manufactured homes are built on a steel chasis

- Often times at the purchase you will pay sales tax

The confusion arises because consumers and a lot of folks in real estate use these terms interchangeably.  An appraiser disclosing that a home was a modular should not disqualify you for conventional financing. 

Good stuff @Eric! 

@Scott Baker unfortunately I do not have any contacts in Alabama.  As I mentioned previously, if the home is truly a modular then lenders should not have an issue.  I understand that this may be easier said than done.

You might want to ask local modular dealers for a referral.  At least that way you can be sure that the lender understands the difference.  

I have sold many site built, Modular and Manufactured homes in my career, the only category that has any trouble is Manufactured, as Site built amd modulare are both built to UDC and Local Code where a MFG home is built to HUD code. Many people even experienced service providers like lenders do not understand the difference, they often hear "Modular" and think Manufactured, you need to know the distinction and educate them. Modular is simply a stick built home, built in a controlled environment and delivered to the site in Modules and assembled, Manufactured homes are factory built to HUD code and the steel framing for the trailer is part of the floor system, they can be set on blocks and skirted, or set on a foundation with a basement. Today you can buy the same floor plan and features in either Manufactured or Modular construction from many companies, understanding the distinctions are critical. A few years back I purchased a foreclosure at Sheriff sale, everyone including the bank thought it was a Double Wide Manufactured, But they were wrong, and I knew it, a little paint, some landscaping and poured a driveway pad and I made $45K in 2 months purchase to closing. Here is a good article to help with distinctions. https://www.modulartoday.com/modularhomesvsmanufacturedhomes.html

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