Conventional or Construction to Perm?

[John]

My wife and I are about to buy a Modular Home and lot. Our mortgage guy apparently got us approved for a 30 Year Conventional Loan and we thought we were ready to roll. We received all the paperwork and a Good Faith Estimate.

Now, our dealer says we need a Construction-To-Perm loan and our mortgage guy has to go back to the banks and get us approved again. He says it's going to be tough and we might have to come up with more money down.

Why?

What's the difference in the two types of loans - if any?

We're totally confused.

Why can't we just go with the 30 year conventional we were approved for? We were approved for $108,000. The home, land, improvements, set-up, etc. is sitting right around $110,000 plus closing costs. We'll be able to put in about $6,000 cash.

Any advice?

Thanks So Much,
John and Tonia

[rmurray]

Sounds like the dealer does not own the land....Building a modular home is just like custom building a stick home on your land...No dealer or builder can do so without payment as the home is built..A conventional loan will not close until the home is complete and ready to live in......This is what a construction loan (also known as bridge loan) is for...You should not have any trouble getting one if you have a real final loan committment from the mortgage company...As a matter of fact almost all mortgage companies that approve mortgages also offer bridge (construction) loans if you have a credit score over 620...Also almost all FHA mortgage companies also offer them.. For those that have lower credit scores...there are companies that specialize in just this type of loan...

There is cost of course.. The least expensive are as low as 1% fee plus attorny's fees and interest while the home is being built....The highest will have fees of about 5%.....

You mentioned selling price....but did not mention appraisal...Most new homes appraise slightly higher than they sell for...In that case...these costs can usually be financed in the final loan..

It would be a rare and not so smart dealer to build this home on yours or someone
eleses land in the hope that you would follow through and close when the time came...Construction loans are just part of doing business...

[Liberty]

After reading your answer to John, I'm not sure I understand. Does this just apply to modular homes or to manufactured homes also? If I have my own land and go to a dealer to buy one of their models, I was under the impression that once I got approved for a mortgage, the dealer ordered the home, set it up on the land, had a walk-through and then we all met at closing where the money was exchanged. Is that not correct? Do I have to get a construction loan in addition to the down payment before the dealer will order the house?

[rmurray]

Every dealer has his own policy on this.....Some dealers will only deal with constuction loans....a few inexperienced dealers might set a home with only your promise....

If there is lot prep, wells, septics, driveways, permanent foundations and the like involved...most dealers will require some sort of guarantee..They may ask for a quit claim deed, mortgage or file mechanics liens on the property...or...your other choice is a construction loan..

If you own your property (not John's situation) and all prep is done...and the dealer has only to deliver home ....he might go ahead...

Candidly most dealers would not be able to afford what you suggest if lot prep is to be done..These deals can take weeks and involve substancial amounts of cash...Of course most sales lots will have 7 to 15 of these going at any one time,,,It would be very poor business for a dealer to have these out without some guaranty of payment......I doubt you would want to deal with such a poor businessperson...

Question...would you expect a stick builder to build a home on your land...and hope you close????

[Liberty]

no, I wouldn't expect a builder to just hope that I close. I understand what you're saying - - - - I just never thought about the process before. The only thing I've ever heard dealers refer to is financing, interest rates, money down, etc. So what you're saying is, I'd really be getting two loans - the construction loan and then convert it to the conventional loan once the house was ready for occupancy. Is that right? Which brings up one of my complaints with m-h dealers. They all seem to breeze through the loan information, not realizing that the idea of obligating myself to thousands and thousands of dollars for a period of 30 years is frightening. I know I'm not the only one who feels this way, yet many of these dealers just ask like it's buying an old used car. I know they can't hold our hand through the whole process but not one of them has ever mentioned a construction loan to me, but now that you've explained it, it makes sense.

[rmurray]

Many times the construction loan and permanent loan are done with one closing..

Sometimes there is 2 closings...Mortage finance is very new for many in our business..Unfortunately not all salepersons understand the process very well..Also at the early stages of looking most customers are not interested in this detailed info...All they seem to ask is..."How much down and how much per month.....The process confuses a lot of folks (both in and out of the business)...

I hope I helped you understand a little better......Now go out and buy that home before interest rates go up...

[John]

Thanks for the insight!

John

[T. Goodwin]

>

This is exactly how it works,if you have this option with your lender
go for it by all means. It will cost you alittle more, but you will be
very glad you went this route after the house is delivered.

We have a 70k house still sitting waiting to be occupied after
9 weeks. We will not release a dime to the builders until they
fix what WE paid for. Your setters, drywallers, carpet people
are all on seperate contracts, they get paid individually.

The motto of this industry is drop the house get paid, not
anymore. I'm dealing with the corporate level with our
house, they are learning the new rules and don't like it
a bit. They grovel to our bank on a weekly basis, send
up a crew to fix 1 problem, expect to get paid, we say
no.

Protect yourself, you have been lied to and deceived
just with the purchasing process, once your house is
delivered, you will now be lied to and decieved by a
higher level of "gravelman".

The houses are a great product, built by 7 dollar an
hour hispanics, set by them, drywalled by them etc.


we love it


It's the people on the lots and in the offices that
ruin this industry. You have a bunch of unemployable
greedy people chasing a small amout of cash, it's
comical really.

Get your construction loan, let the bank deal with these
people. It's your money, not theirs until you are happy.