3 Construction Loan Pitfalls to Avoid When Building a Prefab, Modular Home

 

So, let’s say you’ve used some of our tips and tricks we have outlined to find land to build your new prefab, modular home. And, you’ve mastered the Apps we recommended, added a few of your own, rocked the online tools we mentioned, and you’ve found the perfect lot…Now What? For most of us, this will mean obtaining a construction loan.

I need to stop here and make sure that I make a clear distinction between a construction loan and a mortgage. A construction loan is actually a line of credit purposed to get you through the construction phase of your new home. This includes the purchasing of land, the site work, AND the construction of your home.

Construction loans are typically “interest only”, and payments are made only on the funds dispersed. This means, if you are building a home that takes one year, you will need to come up with the payments for that loan over the course of the year, but only on the amount you have paid out at the time of the payment. If you are building a Modular Home, GREAT NEWS, they are often 50% faster to build than typical stick-built homes.  This means you pay much less interest on your loan.

Once you receive a Certificate of Occupancy (commonly called a “C of O”), your construction loan is paid off by a residential mortgage, and you will start making the traditional mortgage payments you are familiar with.

In our FAQ section, we also mention the fact that you can use the equity in your current home as a down payment on your new Greenfab Home.

So, if this all seems straight forward, that is because it is. That being said, we’d like to steer you around a few pitfalls.

1. Not all banks that offer residential mortgages offer construction loans. This is crucial. You may have started out this process thinking you would purchase an existing home, so you took the time to get Pre-Approved (see discussion on this topic on our Whitepaper, point number 7). If you did this with a lender that doesn’t offer construction loans, you will need to find one that does, and start the process over.
2. Not all banks are set up to handle a MODULAR construction draw schedule (the interval when payments are dispersed to the builder).         Contact us, and we can get you connected to an experienced modular construction lender in your area.
3. Your bank may offer a “Construction-to-Permanent” Loan, which is great in that it bundles both the construction loan and the residential mortgage into one package.  This reduces closing costs. Unfortunately, it may also carry a higher rate, so make sure you shop around or Contact us to speak with our preferred lender.

Ultimately, every path to financing a beautiful new prefab home is unique. We’d love to hear from you to see how we can assist you in your unique path to building the home you’ll never want to sell.