Buying a home is one of the most important decisions you will make in your life. And for a number of reasons, (see more in an upcoming blog) a Modular Home is a superior alternative to either a manufactured home or a traditional stick house.
Although buying a modular home is not difficult, the financing process can be a journey. And like any journey, a map of the ground is very helpful.
As a vetted and approved builder for Federal Savings Bank and other banks, Trailhead Cabins wants to make buying your dream Modular Home EASY!
And in that spirit, we are providing a map of the financing journey for YOU!
In this post, we’ll be looking at what is involved in getting financing for a modular home, leading you through the steps involved and finally answering some of the common questions that people ask during the financing process.
Ready to go? Let’s dive in!
What is a Modular Home (and Why Does it Matter)?
A modular home is a stick-built home that is largely built in a factory and assembled on-site. This is in contrast to a traditional stick-built home, which is normally constructed entirely on the location.
Why does this matter? It matters because it answers the question posed in the title: Since modular homes are stick-built homes, financing for a modular home IS a real estate loan!
Trailhead Cabins Modular Homes are different from Trailhead Cabins Park Models, which are financed as an RV rather than a permanent home. As stick-built homes, Modular Homes require a permanent foundation.
Because of this - we repeat – Trailhead Modular Homes qualify for real estate loans just as a stick-built house does!
5 Steps to Buying a Modular Home
So what are the steps to getting financing for a modular home from Trailhead Cabins?
1. Know your numbers. It is essential that you know your numbers before you start. How much money do you have to spend?
2. Do you need a loan? It is important to know whether or not you will be needing a loan. And right along with that is a second question: Do you own the land on which the modular home will be built?
If you do not need a loan for either the land or the modular home, you can skip directly to Step 5.
3. Getting a loan. Trailhead Cabins works with several lenders (check out our Financing Page). As a Federal Savings Bank approved builder, we highly recommend contacting Liz Crawford at FSB to find out how much you can afford. Financing your modular home is accomplished with a “Construction Loan” with a term of 12 to 18 months. Check out the following section “Securing a Construction Loan.”
4. Get Pre-Approved. Work through the pre-approval process with your lender and get pre-approved.
5. Contact Your Builder. Contact Trailhead Cabins and choose your modular home style.
Securing a Construction Loan
The Construction Loan can be used to acquire the land if necessary. Any Borrower funds used in advance of the
loan are considered “down payment or cash in the deal” for equity purposes.
Land already owned or land that has been gifted to the Borrower will be considered as Owner’s equity and will
be given its current market value towards the total cost of the project.
Cash down payment can be gifted to the Borrower as well if available from a family member.
Federal Savings Bank offers financing in all 50 states. Here are the steps to approval for a construction loan from Federal Savings Bank.
1. Required Documents: Pre-qualification does require a review of your I.D. and income related documents such as paystubs, W-2’s, and possibly tax returns
Typically starts with an online application and a soft pull of your credit. It allows you and your banker to determine how much you can qualify to borrow (and determine affordability).
2. Pre-qualification: FSB will determine the amount of funding you can obtain towards your project. Any costs that exceed that amount would have to be paid by you at the close of the Construction Loan. The Pre-qualification process usually can take as little as 24-48 hours.
Once you and your Banker are comfortable with your ability to borrow funds, you can start on the process of Full Approval.
3. Builder Approval/Client Application: As we said, Trailhead Cabins is an approved and vetted builder of Federal Savings Bank (among other banks), having provided satisfactory references, acceptable licensing and regulator-required insurance documents. Trailhead Cabins will provide floor plans, elevations, and the specifications list for the actual house the client has chosen. The client needs to provide all third-party bids for all site work and hook-ups. It is important to know that in order to move quickly with your project, this part of the process must be thorough and accurate.
The Bank creates an initial budget by taking all the third-party estimates (known as “hard costs”) as well as an estimate of the “soft costs” (closing costs, inspections, etc.) and a “contingency” which is added to make sure that we can cover any cost overruns and puts it all together. This budget will detail almost exactly how much, if any, money the Borrower must bring to the closing table.
4. Market Value: The Lender submits a full set of plans, specifications, elevations, and the initial budget to an appraiser for a “Specs and Plans” appraisal. This will determine the market value of your new home.
This step typically takes about 2 weeks depending on the area where you live.
5. Full Approval: Lastly, we move to fulfilling Final Insurance Requirements. These include Title Insurance and a Homeowners Policy for the closing. Any adjustments to the budget are made and everything is sent to Underwriting for Final Approval and a Clear to Close.
6. Construction Draws: Once the loan is closed, advances on the loan are done via a “Construction Draw”. The Borrower completes a draw request form and signs it. They submit that form plus an Invoice and a “Lien Waiver” from the Builder and other contractors.
Those items are reconciled against the final budget and then paid to the Builder (and other contractors) by money wire.
Each draw is measured against the line-item budget. If a line item exceeds the final budget, it may be paid out of the contingency line item.
7. Final Mortgage Conversion: When the house is fully completed and the Certificate of Occupancy has been issued, your loan will be converted to a final mortgage.
Contact Trailhead Cabins to order your new Modular Home today!
Common Questions
1. How do I get financing?
You should first check to see if you are pre-approved with your own bank. If not, Trailhead Cabins has a strong relationship with several banks. As we said, we highly recommend Liz Crawford from Federal Savings Bank. Follow the steps listed above to get financing for your new modular home.
2. Can I use my land equity as part of the down payment on my new modular home?
Yes, if you have owned it free and clear for at least 6 months. If you have not owned it for 6 months, any equity will be applied to your loan. Any difference can be covered by a construction loan.
The Construction Loan can also be used to acquire the land if necessary. Any Borrower funds used in advance of the loan are considered “down payment or cash in the deal” for equity purposes. Land already owned or land that has been gifted to the Borrower will be considered as Owner’s equity and will be given its current market value towards the total cost of the project.
Cash down payment can be gifted to the Borrower as well, if available from a family member.
3. Is a modular home loan a real estate loan?
If you have read this blog, you know that the answer to this question is “YES!”
It is important to remember that no bank has ever had any problem with Trailhead Cabins’ prices. The only question is whether or not customers can get approved for the homes.
Resources for Getting Your Loan
Trailhead Cabins Financing Page
Federal Savings Bank Loan Application
Planning Your New Modular Home
We hope that you have found this map of the modular home financing journey helpful.
The process of securing financing for your modular home is not difficult, but it is a process and we are here to help!
As a FSB-vetted and -approved Builder, Trailhead Cabins looks forward to helping you make the modular home of your dreams a REALITY!