FHA Manufactured Home One Time Close Construction Permenant
In my opinion the FHA Manufactured Home One Time Close Construction Permanent Loan is one of the most difficult transactions to put together. It layers all of the most complex loan types imaginable you have a Construction To Permanent Loan combined with an FHA loan and then mix in Manufactured Home as the property type and I think all levels of complexity are covered.
I have been originating these loans for about 1o years and the amazing part is that once you get used to them they are very easy and very consistent. The biggest problem is when a company jumps into this arena with no experience because there are a lot of mistakes that can be made.
On top of this there are some discrepancies between different HUD offices on how these transactions can be handled. The Denver HOC seems to feel that all new construction manufactured home utilize the BOL (Build on Own Land) Worksheet. The Atlanta HOC instructs that they can be underwritten as either a BOL or a Construction to Perm Transaction.
I will get into more detail about the different types, but for the most part the Manufactured Home Construction Perm works like any other construction perm. The borrower closes upfront on the loan and the land is paid off, once the home is set (or in some cases just constructed) it is paid off, and then the dealer can take a draw for additional expenses. In the end the loan converts or modifies into an FHA Loan. This conversion or modification is NOT a second closing, it just ends the construction period, sets the permanent loan rate and the permanent loan term and maturity. The great thing is there is no re-verification once construction is complete. The entire loan approval is based on the original closing date, and all of the original pay-stubs, bank-statements, credit report etc.
Manufactured Home Dealers benefit greatly from the FHA One Time Close Construction Loan:
1) Manufactured Home Dealers are able to shift the borrowers credit risk, no more setting a home to find out that the borrower’s score dropped or their job changed and they no longer qualify.
2) Manufactured Home Dealers are able to free up capital and floor plan lines. By having the construction loan provide the funds the dealer frees up his capital for running his business.
I have interviewed with or worked for almost all of the major players in Manufactured Home One Time Close Construction Perms over my career. Personally I always preferred companies where the same lender underwrites the FHA loan and Underwrites and Administers the Construction Portion and Final Funding. If you are working with a program where these functions are split you have to be sure that all players are on the same page.
The other important piece is to look at the companies exposure to manufactured home loans. I am a huge advocate of manufactured housing but at the end of the day I call tell you from 10 years of experience that they are more likely to default. If a company funds 100% of their business as manufactured housing at some point they will have problems with neighborhood watch and default rates. Also the end investors track default rates and a company is selling 100% manufactured to their servicing lenders they will eventually get cut off. I have seen it happen to a few companies I worked for in the past.
I try to make sure that Manufactured Homes only make up 15% - 20% of my volume. This helps protect the company and my dealers because we won’t run the risk of getting cut off.
As far as qualifications for the loans they run pretty standard with FHA. A 580 is a good minimum benchmark for credit score but its not a set minimum. It is much easier to get a loan approved over a 580, the lower scores can be approved but require compensating factors (usually reserves and a good LTV). In order to accommodate 100% financing a non profit gift can be used, this allows the dealer to contribute the required down payment to the borrower through the non profit gift company. Collections don’t have to be paid off in most cases and borrowers with no credit score can be approved with alternative credit.
Manufactured Home Information:
- All manufactured homes built on or after June 15, 1976, must have an affixed HUD seal(s) located on the outside of the home indicating the house is in accordance with Federal Manufactured Construction and Safety Standards. If the home is a multi-wide unit, each unit must have a seal. If the tags are missing from the property, the appraiser must recommend rejection of the property and notify the lender.
- A certification of compliance with the Foundations Guide, including the licensed professional engineer’s seal and signature, is required on all manufactured homes.
- All foundation systems, new and existing, must meet the guidelines published in the Permanent Foundations Guide for Manufactured Housing, HUD-7584, dated September 1996. A certification attesting to compliance with HUD requirements must be obtained from a licensed professional engineer and included in the insuring file. This procedure does not apply when the current FHA borrower refinances their loan. It is applicable for all re-sales.
- The home must have at least 400 square feet.
- The home must be built and remain on a permanent chassis.
- The home must be erected on permanent foundation designed and constructed in accordance with FHA requirements.