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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.
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:
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:
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:
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:
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.
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December 13, 2023
Mortgages
June 7, 2021
Mortgages