Home > Mortgages > 4 Unconventional Homes You Can Buy & How to Do It

Comments 0 Comments

Looking to purchase real estate other than a traditional cookie-cutter single-family home? If you’ve ever been told you can’t get residential mortgage financing on a certain type of property, think again. As challenging as it may be to get a loan for an alternative property type, it can be done.

1. Manufactured Homes

Considered to be untouchable by traditional mortgage lenders, the manufactured home poses a big risk to the lender: its mobility. If it’s mobile, it can be detached, creating an enormous risk to a lender granting the loan. A manufactured home, unlike a modular/prefab home, is purchased from a dealer and moved to the final destination and then attached usually with a permanent foundation. The mainstream loan program that supports this property type is a loan insured by the FHA. Under the FHA, a manufactured home already attached can be bought with as little as 3.5% down up to the maximum conforming high balance loan limit in the county in which the property is located. For example, in Sonoma County, Calif., this amount goes to $520,950.

The main stipulations:

  • The property cannot have been previously moved by the seller. In other words, the property is ineligible for the FHA loan if the seller purchased the home and moved it more than once from the time they bought the property from the dealer and attached it to its final destination.
  • You must have an engineer’s certification specifically acknowledging the property is permanently affixed to the foundation.
  • You’ll need a 640 middle credit score.

2. Modular Homes

A modular home’s construction is more lending friendly. A prefab modular home comes in sections and is built onsite at the property from the ground up, much like a single-family residence. And because the home construction is affixed to the land, the lender considers this to be a less-risky property type. Modular homes can be financed with an FHA Insured Loan up to 96.5% financing and with a conventional loan up to 95%, for a borrower’s primary home.

The main stipulations:

  • The home mirrors a single-family residence, as the lending guidelines for both FHA and conventional are nearly identical.
  • An FHA loan requires a middle 620 credit score for this property type, as does a conventional loan.
  • On loan sizes over $417,000 to max county loan limit, 10% equity is needed.

3. Non-Warrantable Condominiums

A non-warrantable condominium means that the condominium in question is not eligible to be sold to Fannie Mae or Freddie Mac, therefore many lenders typically would not finance this type of property. There are a few scenarios that render a condominium non-warrantable. For example, if any one person or any one entity specifically owns a majority share of the condominium complex as income-producing property units, resulting in a ratio of more non-owner occupied units than primary home units. Another example is when there is a severity of property litigation against the condo’s homeowners association. Depending on the scope of the type of litigation against the homeowners association, this can make the property non-warrantable. Alternatively, a less common scenario is when the subsequent phases of an original proposed condominium project are not complete. Condominium projects are usually completed in a series of phases, like if phase one of three phases is complete, but the subsequent two were not complete, your home loan lender might take issue with this.

The main stipulations:

  • The lender will need to obtain a homeowners association questionnaire form filled out in its entirety to determine if the property is lendable. If it is determined that the property is non-warrantable, you’ll need to find a lender who will lend on this type of property, and many are now offering financing for this unique scenario.
  • Lenders that offer financing on non-warrantable condo loans should be able to go to 95% financing on a primary home with at least a 680 credit score.

4. Converted Rooms/Garage

For lending purposes, if the bedroom conversion or the garage conversion was done with a permit in a legal fashion with the local county, it’s automatically lendable. However, the majority of the time when converted rooms and garages arise, they were not done legally. As such, real estate agents can’t include any value for these non-permitted additions. It all boils down to the appraisal. In most cases it’s going to end up being a roll of the dice for $500 (appraisal cost) to determine if you can move forward with the non-permitted improvements. If the appraiser notates the property was done in a workmanlike manner without requiring any further actions or feedback, this should be acceptable for the mortgage company.

The main stipulations:

  • If the appraiser signs off that the construction was performed in a workmanlike manner, no further work should be necessary as long as the appraiser does not require any further changes (such as restoring the improvement back to its original condition).
  • The appraiser may decide the non-permitted addition or conversion is a health and safety concern. So they cannot sign off on the appraisal until the property is made whole by fixing the appraiser’s concerns.

Common Property Conditions That May Cause a Lending Issue

  • An empty pool will need to get filled in and have a safety gate installed around the pool’s perimeter.
  • An exposed sub-floor requires new flooring to be installed.
  • A carbon monoxide detector should be installed pre-appraisal inspection, otherwise the appraiser would revisit for a final sign-off.
  • If the roof needs work, a third-party independent appraiser would have to provide a report speculating the future economic roof life. If the roof has three years left or longer, that works for most lenders.
  • Exposed wiring/peeling paint both have to get fixed prior to closing escrow, as this is an FHA hot button topic appraisers are required to look for per HUD regulations.

The bottom line: If the property is not raw land — as in dirt — and it’s considered to be a residential i.e. single-family home, condominium, planned unit development, modular/prefab home, or multi-family 2-4 units (duplex, triplex) or even a manufactured home, you can almost always secure a mortgage as long as the property is in livable condition and there are no obvious signs of health and safety hazards.

Before you apply for a mortgage, take note of the lender’s minimum required credit scores, then check your own scores to see if you meet those minimums. Doing this in advance can help you plan in case you do need time to improve your credit. Also, the better your credit, the better your access to lower interest rates, which means you pay less over the life of the loan. Check your credit reports to see if there are errors or any other issues that are hurting your credit. You can pull your credit reports for free through AnnualCreditReport.com, and you can use the free tools on Credit.com to see your credit scores.

More on Mortgages and Homebuying:

Image: Daisy-Daisy

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team