Copyright 2008, 2009 & 2009 by Modular Homes Network

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1 Published and distributed by Modular Homes Network 3660 Nicklaus Drive, Clarkston, WA Phone: (888) Fax: (866) Website: Modular Homes Network is a consumer based company that offers rating guides for, manufactured homes and modular homes in North America. We remain committed to our readers by offering unbiased information about the factory built housing industry. We have NO hidden agendas. We receive NO commissions or advertising kickbacks. We have not accepted any payments to promote one company over another. We can assure you that all of the information contained in this guide is based on independent research and countless interviews and is from an objective point of view. Copyright 2008, 2009 & 2009 by Modular Homes Network All rights reserved. No part of this publication may be reproduced in any form without written permission from Modular Homes Network. Although every precaution has been taken in the preparation of this book, the publisher and author assume no responsibility for errors and omissions. The author and publisher disclaim any liability, loss or risk, personal or otherwise, which is incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this book. Cover design: Greg Ryan

2 Chapter 1 Understanding your Lending Options Manufactured homes are the most affordable homes on the market today and they come in many sizes and shapes. New manufactured homes come with carpets, window blinds, appliances and even a dishwasher/dryer in some cases. For many, the main attraction to owning a manufactured home is the cost savings compared to traditional building methods. This type of housing is especially attractive for retirees or first-time home buyers, the main selling point being, affordability. But if you re not careful you could end up spending more than you bargained for. Based on our research here at Modular Homes Network, we estimate that the average home buyer spends 5% to 15% too much for their new manufactured home. On an $80,000 home purchase that could add up to $12,000. That is money that could have been used for landscaping, upgrading the appliances or adding a double-car garage. As with all major purchases, you have to research your options and ask the right questions to make wise decisions. This takes time and many buyers don t have the patience or the time. The good news is: you took the time to purchase this consumer guide and hopefully you will put our tips and suggestions to good use, which could save thousands of dollars. If you are planning on financing your home you need to know your options before you start looking. We know you want to go right out and start shopping for a home - you may have already viewed some homes at a dealership or, maybe have selected a particular floor plan or model. We realize the urge to shop till you drop is so in-grained in our society, but knowing your financing options is the first step to securing the best deal possible. If you re a cash buyer you can skip this section. Understanding what you can afford When considering financing, remember that the monthly loan payment for the home itself is not the only financial commitment you must make. You may be responsible for annual property taxes, utilities and insurance. If a variable rate is presented to you, avoid this at all cost. It s just a scam to get you into the home cheap and when it expires you could be in a

3 tight spot. Currently interest rates are very low so settle on a fixed rate and avoid the hassle of refinancing later on. Chart A, below, will help you determine the monthly mortgage payments, including insurance and property taxes, that you can afford. For example, if you have a $4,000 monthly gross income, you may be able to afford a $1,120 payment ($4,000 x.28). Lenders assume that 15% of the monthly amount you can afford will cover taxes and insurance. Chart B, below, will help you determine what your total monthly debt can be, in addition to the mortgage, in order to be qualified by a lender. Lenders want to be sure you can meet all of your regular monthly debts, so they use a second criterion: the 36% formula. For example, if you have a $4,000 monthly gross income, your total regular monthly debt (including a mortgage payment) should not exceed $1,440 ($4,000 x.36). Note: If you have high outstanding debts, such as auto loans or credit card balances, it may be more difficult to qualify for a mortgage. Most lenders will require a down payment between 5% and 20% of the total value of your building project. For example; if your building project (land/home) is projected to be $125,000, your lender may require a 10% down payment. This means you will need a minimum of $12,500 to put down. This website offers different mortgage calculator tools at Select, How Much Do I Qualify For, fill in the required fields and the form will show you what you can afford based on your income. Know your credit score Knowing your credit score does play an important role. The higher your credit score; the lower your interest rate will be. A common rule of thumb is a credit score over 700 will qualify for most mortgages. A credit score over 750 is considered excellent and should qualify for the lowest interest rate available.

4 There are many companies online that provide a service where you can access your credit report for FREE! Remember knowledge is power, become informed and take control. If you don t know your credit score, find out. It s easy. Here are a few companies online you can use to check your credit score Start with local lenders in your area The best advice my research team and I can give you is - spend some time talking with local lenders before you head out the door to look at manufactured homes. Many local banks and credit unions have not been hit as hard by the financial melt-down on Wall Street. You may find their lending practices to be more favorable compared to large corporate banks. We recommend contacting at least three different lenders. Be sure to ask, Does your bank specialize in factory-built home loans? You may need to qualify this by stating which type of factory-built home you re considering. It is easier to secure financing for a HUD-code manufactured home being placed on a permanent foundation compared to leased property or a mobile home park. Find a lender you feel comfortable with, one who listens to you and offers practical alternatives for your particular situation. Knowing the amount you qualify for and interest rate before you start shopping will give you a big advantage when negotiating with your dealer later on. Suggestion: when choosing a lender, ask your loan officer about their closing costs up front. Typically, closing costs are between 3% and 6% of your total loan amount. We know of some lenders that charge 10% or more. This is another way for a lender to build their profit margins. So, be on the lookout for this maneuver and try to stay within 5% or less. Sometimes you can negotiate with the lender when it comes to certain closing costs, especially if there is another lender you re considering and both seem to be offering the same rates. It doesn t hurt to ask. The Internet can be a good source for securing a loan The Internet can also be a good source also for obtaining a good loan package. Below is a list of lenders that specialize in manufactured home loans. Suggestion: don t go online and fill out five different loan applications; this will hurt your credit score. Every time you apply for a loan it can lower your credit score by about two points. Now, two points is not a big deal but if you have your credit checked five or seven times by various lenders this may work against you. So, be selective before you start submitting your credit application to various lenders. Modular Homes Network is not affiliated with any lenders and the list below is not a complete list:

5 Be wary of financing terms offered by your dealer Most people depend too much on their dealer. Once they have gained your trust in finding you a home, you let your guard down and accept the terms of financing without shopping around. Most dealers have relationships with lenders and can arrange financing for you but most will have higher fees. Some dealers do a very good job in securing a good loan package, but others do not. So, do your homework and be informed. If your dealer can secure the best financing for you, take advantage of it. In A. M. Watkin s book, Manufactured Houses-Finding and Buying Your Dream Home for Less, he states, No matter what kind of financing you seek, the importance of shopping for a good loan at the lowest cost cannot be overstated. You will generally save by obtaining your own loan direct from a lender, rather than financing the deal with your friendly mobilehome dealer who will be delighted to handle the details for you. It s convenient, all right, but it can also cost you extra money. After all, the dealer must do extra work, so why shouldn t he or she be paid extra? Anytime there is a third parting involved it means you re going to pay more! For example; suppose you have shopped around for the best loan package. You may have focused on local lenders in your area or you may have used the Internet to secure a great loan package. In either case let s assume you have two quotes with similar interest rates. You then go shopping for a home and find a model you like. Your dealer asks if they can assist you with financing and you say, Sure - why not. You fill out a credit application and your dealer submits it to their lending sources and comes back with an interest rate similar to yours. This would indicate your dealer is being honest and up-front with you, a good sign. But, on the other hand your dealer comes back with a much higher interest rate - you re probably dealing with a dishonest company. Now, let s take this a step further. Your working with a dealer you trust and they have a similar rate compared to one you have secured before you started shopping. In this case you could mention to your salesperson you have been approved for a similar rate and would like to know if they can beat it. An honest dealer will try to, and in most cases they may be able to match or beat your original quotes. Did you know that by lowering your interest rate only 1% you could save $10,000 to $15,000 over the course of 30 years? By working with a lender in advance, you will learn which loan packages are best for you. This is an important step; one that is overlooked by many.

6 Chapter 2 Financing a HUD-code manufactured home When shopping for a loan, the interest rates may vary depending on how your manufactured home is installed and placed on its foundation. A Land/Home Package with a permanent foundation will qualify for the best mortgage rates. A HUD-code manufactured home being placed on leased property will have a higher interest rate. This type of loan is called a Home-Only Loan. If you obtain an FHA, VA or USDA guaranteed loan, the interest rate can be less, with lower down payment requirements or no down payment. Unfortunately, obtaining an FHA, VA or USDA loan for a HUD-code manufactured home can be time consuming. Homes that are custom ordered from a factory may not qualify for this type of loan. If you think you qualify for these types of loans, check with your lender or dealer. Real property If you are purchasing a HUD-code home and placing it on private property this is considered "Real Property," which qualifies for conventional financing. Many financial institutions today don t differentiate between a factory-built home built to state and local building codes verses a stick-built home loan. Most lenders will finance site improvements like concrete foundations, septic systems, utilities and landscaping. Construction loan process Understanding your mortgage options and how the construction loan process works will help you avoid common mistakes that could be costly ones. Below are some great websites that we often refer our clients to when searching for the right loan: 1. Some lenders or mortgage brokers will tell you the advantages of whatever mortgage they are trying to squeeze you into, but rarely will they tell you the disadvantages. HouseBuyingTips.com is a great source of information at, 2. Credit Grade Guide This guide was designed to help you assess your possible credit rating and determine what type of terms you can expect from a lender. Please keep in mind this is only a general guide, as some lenders place different grades based upon their own method of evaluation. The address is

7 Closing costs Closing costs are an important part of any loan and trying to figure out the different fees can be frustrating. Closing costs are determined to be reasonable and customary but may differ from lender to lender. Here is a partial list of what might be included in your closing costs: The appraisal fee and any inspection fees Actual cost of credit reports Lender's origination fee Deposit verification fees Home inspection service fees Cost of title examination and title insurance Document preparation (by a third party not controlled by the lender) Property survey Attorney's fees Recording fees, transfer stamps and taxes Test and certification fees, water tests, etc. Private mortgage insurance For many, Private Mortgage Insurance (PMI) is a necessary evil when trying to secure a loan. Now, everybody needs Home Insurance, which covers your home and valuables in case of a fire or theft. But private mortgage insurance is tacked on to your loan payment if you don t meet the down payment requirements of the lender. You can qualify for financing with as little as a 3% down payment. But with a small down payment the lender wants some assurance if you default on your loan. Private mortgage insurance pays the lender in the event you default on your loan. Private mortgage insurance can really spoil things by forcing the payment beyond your reach. Most lenders require a 20% down payment to avoid this insurance. Some lenders may only require a 10% down payment without charging you PMI. The interest rate may be a little higher with only 10% down but it still may be the best way to go if you can avoid paying for this additional insurance. If you find yourself in this situation be sure to shop around for a lender that does not require you to pay PMI. Signing papers (closing or escrow) Once you have loan approval, your lender or sales center will arrange for the signing of papers called Closing. Closing can take place at an escrow company or the lending institution. If your dealer is handling your loan the closing can take place at their location. All documents will be presented for your final review and signature. Suggestion: take your time to review all documents and be sure the interest rate, closing costs and fees are the same as previously discussed with the lender or builder/dealer.

8 The funding process The funding process begins once the home has been delivered to the customer s site. In some situations a lender will not release funds until the home has been installed. In most states your dealer will notify the lender once the home has been delivered. At this point the lender will usually go to the customer s site and take a picture of the home. Once the lender has determined the home is on the customer s site, the lender authorizes the release of funds to your builder or dealer. This process can take up to thirty days before payment is received from the lender. If a problem arises- for instance the manufacturer delivers the wrong home or the home was severely damaged during delivery- the buyer can notify the lender and halt the funding process. This protects the buyer and puts pressure on the dealer to correct any problems before they can receive funds. Paying cash When you finance a home, as the buyer you have some protection if things go wrong. But what if you re paying cash? Paying cash has some benefits but you may be vulnerable if you re not careful. Here are a few suggestions that will help protect you and your investment when paying cash. First, don t pay your dealer in full before the home has been delivered. Second, work out an agreement in advance in regards to how funds will be collected. Finally, try to pay in three separate stages; this way you ll have some control over the delivery and installation process. In the first stage, your dealer will probably require a down payment of 10% or 30% before delivering the home to your site. The second stage of funding will take place after the home has been delivered and inspected by the buyer. This payment will vary depending on the agreement with your dealer. I would recommend holding back 10% to 20% of the remaining balance at this point. The final stage of funding will take place after the home has been installed and is ready to be occupied. After completing the walk-through with your dealer and finding the home satisfactory, final payment should be released. Some dealers don t like the idea of customers holding money back because homebuyers sometimes hold their dealer hostage. We don t live in a perfect world and it s unrealistic to demand that everything be perfect before final payment is made. The warranty process is intended to correct any problems in a timely fashion and a reputable builder or dealer will work hard to ensure customer satisfaction. So, when paying cash, work out a payment plan in advance. Follow the three-phase payment plan as mentioned above and don t sign on the dotted line until you have a plan in place.

9 Appraised Value Chapter 3 I get a lot of questions about appraised values on manufactured homes. Many are concerned that HUD-code homes will not appreciate over time. To answer this important question I am including this chapter, which goes into detail about how manufactured homes are appraised. Before the lender approves a loan, it will determine if your HUD-code home is worth the price you are paying for it. The lender needs to be confident that it can recoup its investment should you default on your loan. If your home is appraised at a value equal to or greater than the total price you are paying, your lender will conclude that the loan is backed by sufficient collateral. (This applies to land/home packages only). A licensed appraiser one approved by the lender will compare your homes location, style, size, upgrades or feature and property to other comparable HUD-code homes in your area. An appraiser will not compare HUD-code (on-frame) homes to conventional homes in your area. Only homes with a steel undercarriage supporting the floor system built to HUD standards will be considered comparable. An entry-level modular home with a steel undercarriage will not be compared to traditional stick-built homes either. An appraiser will compare this type of home to other on-frame modular homes or manufactured homes in your area. The appraised value will be less in this situation compared to a true modular home that does not have a steel undercarriage supporting the floor system. Manufactured homes will appreciate in value but at a slower rate compared to other residential homes. One way to improve the resale value is to place your home in a quality neighborhood. Professional landscaping, double car garage and decks or patios will also have a dramatic impact on appraised value in the future. A manufactured home with residential appeal like; a 4/12 or 6/12 roof pitch and lap siding will also have an impact on appraised value. Bottom line is this if your HUD-code manufactured home looks similar to other quality homes in your neighborhood with nice landscaping and two-car garage you ll be fine when it s time to sell. If you have dirt for a front yard, old tires on the roof and a pig out front, don t expect much for resale value.