If you are financing your home, read this.
If you are purchasing with cash in full, congratulations!
Today’s buyer of factory-built homes may choose from a wide array of financing options. Some financial institutions offer an entire menu of lending programs. If the house is a manufactured house, it can be financed as personal property, on leased land, in a manufactured home community or on a privately-owned site. Buyers who desire to acquire land in conjunction with the home can finance the land and home together. If the house is a modular house, it will have numerous types of mortgages and loan packages for financing options.
Builders may be able to supply a list of lenders in their area that make loans on manufactured homes. The customer must apply directly with lenders of their choice. Consumers are encouraged to check with other local lenders for a variety of financing options.
Understand that rates will vary based on the type of financing you need and your credit history. What you invest in the deal in cash or equity, and the loan term needed can also affect your rate. Understand this when looking for the “best rate”. It is not an easy question to get answered.
CREDIT AND CREDIT REPORTS
Sometimes, it can be uncomfortable to talk about your credit, salary or debts, but when buying a home, your financial situation is of utmost importance. Every element of the home you build will be directly related to your credit-worthiness and to the amount of money you have available; it’s as simple as that!
Your credit worthiness will include your residence and job history, credit history and the amount you are seeking to finance. The lending institution and you may have different ideas of what you can afford. The salesperson or loan originator will look at your debt-to-income ratio and match that to a loan source.
What does a lender look at when deciding whether or not to approve my loan?
Lenders set their own rules on what qualifies for a loan approval. If you are looking for the best chance to have your loan approved, there are some things you can do in advance to help.
1. Pay your bills on time
Lenders look for indications that the applicant is going to pay the loan back on time. A pattern of late payments means your chance of obtaining credit – or at least getting favorable terms – is diminished.
- Keep your debts under control
If you have too much established debt, you’re considered a higher credit risk. Many experts say non-mortgage debt should not run higher than 15% of your income.
- Keep your use of credit under 30% of your available credit limit
Using only up to 30% of your available credit on your credit card(s) will help to raise your credit score, and will give you a stronger, more positive credit report.
- Long history of credit
The longer you have had credit extended to you, the more favorably a lending institution will look upon you. Some lenders advise not closing old accounts… they have helped to establish your credit worthiness. You should check with your mortgage broker or lender as to whether you should keep old accounts open.
Remember, lenders are trying to determine that you will be able to repay the new debt as agreed. Well before starting the application process, check your credit score and your credit report, and make corrections to errors on your credit report.
What is a credit report?
A credit report is your record of repayment on the credit you have had extended to you. Car loans, credit cards, bank loans, even utility payments all can appear. Legal matters which are public record, that involved your payment history, such as bankruptcies and collections are all noted on your credit report as well.
It is a good idea for prospective home buyers to have their credit report checked before looking for a home, to ensure the accuracy of the report. Identity theft and errors on credit reports have risen in recent years. Everyone should check their credit reports on a regular basis to ensure this isn’t happening to them.
If you choose to check your own credit, the three major credit reporting agencies will send you your credit report. By law, you may now receive your credit report for free, once per year.
The credit reporting agencies are:
|Equifax||Trans Union||Experian (formerly TRW)|
|P.O. Box 740241||Consumer Disclosure Center||National Consumer Assistance Center|
|Atlanta, GA. 30374||P.O. Box 1000||PO Box 2002|
|800-685-1111||Chester, PA 19022||Allen, TX 75013|
If you believe there are mistakes on your credit report, be sure to:
- SET THE RECORD STRAIGHT! All three Credit Reporting Agencies’ websites have an online dispute Gather all of your supporting information and submit it. The online process provides a legitimate “paper trail,” but you can still do this via mail.
- Contact the company that reported the negative item. Ask them to send a statement about the error to the three credit bureaus.
- Make copies of all documents that support your contention that an item is incorrect. Send the information to the reporting companies.
- Follow up with the credit bureaus to make sure the error has been corrected. You must be persistent!!
Write a letter to each of the Credit Reporting Agencies listing the mistake and describe the problem in detail. There are federal laws that govern errors in your credit report. Contact the Credit Reporting Agency and they will assist you in addressing the corrections.
Clearing up incorrect information on your credit report takes time. You have the right to insert a 100-word statement in your credit report. Potential lenders will see your statement when they request your credit history. This statement may help mitigate or explain any negative items listed.
Send correspondence to the credit bureaus by Certified, Return Receipt Requested mail.
The “Fair Credit Reporting Act” requires credit bureaus to solve problems with your report in a reasonable amount of time. Thirty (30) days is the target. If you think that your situation is not being handled properly, contact the New York State Attorney General or the Federal Trade Commission at 202-FTC-HELP.
When applying for a loan, what information will I need to supply? The following list is an example of the items that may be requested. Each financing institution may have its own requirements.
- W-2 forms
- If self-employed, business tax returns for the last 2 years
- One (1) month’s pay stubs for everyone applying
- Bank statements from all bank checking and savings accounts
- Copies of brokerage accounts statements and a list of any other assets including boats, RVs or stocks, etc..
- Copies of 401K or other retirement account statement
- Documentation of any additional income, such as child support or pensions
- Account numbers for credit cards and account balances
- Lender information on any installment, student, car or other loans
- Personal addresses for the last 5 years, with landlord information, if any
Since you checked your credit report, you know what is there. You will want to explain, in advance, the history for any negative items.
When the application process is completed, the lender will come back with an approval that will list the amount that can be borrowed, the rate and approximate payment.
Add the amount of money generated by your financing package, plus whatever cash you have for a down payment: that is the budget you have work with. If you own land, the equity in the land may also be used.
ONE ADDITIONAL WORD ABOUT MORTGAGES:
Mortgages are loans that are tied-in to the land and whatever is attached to it, like the house. To make sure that the land on which the home is being placed is free and clear of any past encumbrances or debts, banks look into the history of the land.
Title searches are performed, and then title insurance is written on the property to insure the lender that no old claims can be made against the property. The lender needs to know that the land has a â€œclear titleâ€.
An abstract company searches the official records from the County, checking for debts listed against the land under previous owners. Once the abstract company is sure that the title is â€œclean,â€ it writes insurance on the title. That insurance pays any claims that are brought against the land by former debt holders, should they turn up, while you own the property.
Title searches and insurance are part of the closing costs of a mortgage. Closing costs are the costs generated by putting the loan in place. Closing costs can include any local mortgage taxes, filing fees, legal fees, document preparation, appraisals, surveys, and other costs.
Depending on your credit situation, you may have several choices when it comes to choosing a lender. Besides the interest rate, the closing costs can have a real impact on the final cost of your home.
Lenders must supply you a “good faith” closing cost estimate, in advance of going forward with the loan. In some cases, they will list costs that might not apply, but have to be listed, just in case.
Congratulations on your new home!
With careful planning and preparation, it will provide you a good place to live for many years to come.