Modular homes are a great investment in your future, but like most good investments – getting it takes some effort and often a lot of paperwork. If you’re searching for a modular home, you’re likely also searching for the best way to pay for it. Here are a few different options for financing modular homes.
1) Government-Backed Construction Loans
The government backs several kinds of loans for prefab homes. The FHA loan offers loans to modular home builders whose credit score or down-payment amount prevent them from acquiring a conventional mortgage. At the time of publishing, to meet the requirements of an FHA loan, potential modular home builders must have a credit score of at least 500, which will require a 10% down payment, or a score of 580 or above to reduce that down payment to 3.5%. Additionally, you’ll need to provide documented proof of employment, income, assets and liabilities. The property you build on will also have to be appraised and approved by the FHA. For all FHA construction loans, buyers who bring less than 20% down will have to pay mortgage insurance, an unavoidable trade-off of the low down payment. It’s a great option if you want to build a modular home but you don’t have the best credit history or a hefty savings account.
Another type of loan is the USDA loan, which is best for lower-income earning builders of prefab homes who are willing to live in a rural area. If approved, this loan is 0% down. Since Next Modular offers a wide selection of modest, affordable modular homes for sale in rural Indiana and Michigan, this option is worth looking into!
If you are a US veteran, a VA modular home construction loan is a great option as it is 0% down, requires no mortgage insurance, and maintains competitive interest rates. The VA sees modular homes for sale the same as they would a stick-built home for sale, so it won’t be difficult to get a construction loan. Both the USDA loan and the VA loan require the same proof of employment and income history as an FHA loan. We have built relationships with excellent lenders who are ready to walk you through the process and help you get financed, so call us today to get started on financing your modular home.
2) Conventional Construction Loan
If you have a nest egg available to use as a down payment, and your credit score is decent to good, a conventional, or traditional construction loan is probably best for you (read more about construction loans here). Because a potential modular home builder seeking a conventional mortgage is usually able to pay a larger down payment and has a good credit score, they are considered lower-risk. Many banks are willing to conventionally loan the money for modular homes because the homeowner has a vested interest in maintaining the home and avoiding foreclosure, and because they are likely building a “forever” home or at least plan to live in it a long while. Of course, any lender is going to ask for a lot of proof of financial viability, but they’ll provide a representative to help you understand and submit all of the paperwork. Be prepared to find and deliver these pieces of personal information:
- Your “personal finance statement,” which is a document that gives the bank a snapshot of your financial well-being. You’ll list your income and assets, loans, monthly payments and liabilities.
- Employment verification. You’ll provide your employer’s contact information so the bank can verify that you are an employee in good-standing.
- Paystubs and bank statement, often for the last couple of months, to ensure you are earning money regularly and are able to save consistently.
- Federal tax returns, often for the past 2 or 3 years. The bank wants a bigger picture of your financial history to help them determine the highest loan amount they can offer you.
- Credit report. You’ll need to sign a permission form for the bank to obtain your report.
- Other proofs of viability. You may be asked to document other incomes, such as an SSI payment, child support or proof of income earned on the sale of a previous home.
3) Pay cash
This option isn’t available for all modular home builders, but if possible, it’s hands-down the easiest option. If you have sold a home and are now sitting on a sizable profit, a cash purchase will get you into any of our prefab homes in your price range without a mountain of documentation. For the simplest process possible, you’ll need 100% cash for the purchase. You may decide that building a more modest modular home with the cash you have is worth more to you than the hassle of acquiring a mortgage for a bigger home with more amenities.
Next Modular knows that choosing how you’ll finance your modular home is a decision that will impact your life significantly. We’ve got the experience and knowledge to guide you through this process and help you make the best decision for your future. Give us a call today at (574) 334-9590 for more information.