GREATER EL CENTRO CALIFORNIA
The Home Buyer’s Korner
Newly Manufactured & Modular Home Ownership Tools
FHA One Close
The General Contractor/Retail Dealer Role
Many of our network members offer the FHA One Close and it’s an ideal tool for general contractors to share with their customers considering building a manufactured or modular home on site.
Since the permanent loan is closed before construction begins, there is no “requalifying” of the home owner when it is time for conversion of the construction loan to the permanent loan. The FHA One Close is just one more tool general contractors should become familiar with as manufactured and modular housing becomes an even more attractive alternative for affordable housing.
We’ll touch on several interesting features about the FHA One Close and encourage you to find out more by networking with any one of our members in your area.
First and foremost the FHA One Close is going to be insured by FHA, therefore home buyers need to meet the same credit, appraisal and income requirements just like when purchasing an existing residence. If you happen to own the land, you can use the equity for all or part of the 3.5 percent investment or down payment requirements required by FHA. Other benefits of this program are:
- Reduced total cost due to only one closing;
- Reduces interest rate risk;
- No payments due from the home buyer during construction;
- The home buyer’s first payment begins once construction is complete;
- No Credit, document or appraisal expiration once the loan closes;
- No re-qualification of for home buyers once construction is complete;
- General contractors/retailers are allowed staged funding draws during construction based on line-item percentage completion.
Once approved the lenders focusing is directed to the general contractors, because the loan is more than a simple FHA home loan. It’s your home installation tool and begins to work a lot like an FHA 203K renovation loan, but has some differences.
It has a lot of great bells and whistles both the home buyer and general contractor will enjoy. For example, since this is a true one close, worrying about permanent financing or a second signing is eliminated.
At closing the title company will if necessary pay the land seller off with an initial draw. Additionally if the manufactured/modular home has been built and a factory invoice is available, the general contractors/retailer can request that the factory or their floor plan source be paid at closing as well.
Once approved your lender will formally advise you and the general contractor/retailer with a Letter of Commencement informing everyone that the loan has closed, loan documents have been recorded and construction can begin. Often these letters details instructions and a list of specific items and forms required prior to any release of any draws.
In most cases on manufactured/modular homes the general contractors/retailer is allowed up to 3 interim draws after closing including the final draw. Upon receipt of a request by the general contractors/retailer for a construction draw, your lender most likely will order an inspection of the construction project by an approved agent. The inspector will inspect the property, take photographs, and forward the report to your lender. Upon receipt of the inspection report, the lender will match the report with the manufactured/modular home construction cost breakdown to determine the draw amount. All draws are normally based on a line item percentage of completion and wired to the title agent you have been working with since closing for disbursement.
Prior to closing general contractors/retailers need to provide several items about the home to the lender.
As the general contractor/retailer they need to always have available the following documents for the lender once you have made your home selection.
- Structural Engineer Certified Foundation Plans: Per HUD, the plans must be site specific, stamped by an engineer licensed within the state, and comment that provided the foundation is installed per the plans that it will meet HUD Permanent Foundations Guide for Manufactured Housing. (FHA Loan and Manufactured Home Only)
- Proposed Plot Plan signed by the general/contractor/retailer: Must show proposed placement of home, well and septic on property with distances between each.
- Permits: Building, Well, and Septic (when available)
- Subcontractor Bids: Foundation, Well, and Septic (if available)
The General Contractor/Retailer will most likely be asked to submit the completed and executed items for review and approval:
- General Contractor/Builder Summary Application
- Contractor’s Performance Agreement
- Disbursement Instructions
- Copy of General Contractor’s/Dealer’s State License
- Evidence of General Liability Insurance (or signed and notarized Indemnity Agreement between the home buyer and general contractor/retailer.
- Evidence of Worker’s Compensation Insurance (or written statement from the general contractor/retailer as to why you are not required to carry it)
- Evidence of Dealer’s Open Lot Insurance Policy, reflecting the lender’s legal name, its Successors and/or Assigns” as a Loss Payee, otherwise, an individual Builder’s Risk Policy will normally be required.
A Sales Contract for a new construction always seems to have an undisclosed final sale price and lenders look at several items to determine a sale price they are willing to work with, so it’s important to work with an experience FHA One Close lender. The best way to get your relationship started off right is to provide your loan officer with a set of documents, so they can assist you in coming up with a sales price everyone understands and can work with. Be prepared to offer your loan officer a preliminary cost for home improvements and land. You loan officer can then issue a pre-approval letter and disclose cost of the loan transaction, so your general contractor/retailer can write the exact amount for the contract based on the cost of the transaction.
You should be ready to provide your loan officer several documents to get your home loan application in process. Work with your general contractor/retailer while gathering them up and going over them together before submitting them to your lender.
- Manufactured/Modular Home Construction Cost Breakdown – This is the site improvements budget. It is imperative that it be filled out accurately. This form is used to determine draw amounts and also lets the construction underwriter know that the general contractor/retailer has included all improvements necessary to finish the construction of the home. All construction draws are based on a line item percentage of completion matched with this form.
- Land Contract between land seller and home buyer or copy of your deed if you already owns the land.
- Purchase Agreement or Earnest Money Contract between retailer and home buyer for home and improvements.
- Manufactured/Modular Home Floor Plan and Manufacturer’s Specifications.
- Builder’s Certification with all applicable boxes checked including #2-7 and #8 if a Manufactured Home.
Be Prepared to Provide Your Lender with Draw Document to Fund Your Project Fast.
Site Improvement Draws ~ This draw is for any completed interim improvements. This draw should not be requested until the foundation is complete.
Funds that are normally included in this disbursement are:
- Completed site improvements verified by the interim inspection report.
- General contractor/retailer will be paid for work in place in an amount not to exceed the stated line amount on the Manufactured/Modular Home Construction Cost Breakdown.
The following documents may be required for the Site Improvement Draw:
- Foundation survey (if applicable)
- Building Permit or Letter from the Municipality stating that a building permit is not required (if applicable)
Manufactured/Modular Home Draw
This draw is used to pay off the Retailer’s floor plan financing source or Manufacturer’s invoice (if not previously paid at closing). If desired it may also include payment of any site improvements that were not addressed in a previous draw provided the requirements of the Site Improvement Draw have been met.
This draw will consist of the following:
- Retailer’s cost of the home from manufacturer’s invoice or floor plan financing payoff statement (if not previously paid at closing).
- Completed site improvements verified by the interim inspection report that were not addressed in the previous Site Improvement Draw.
The following requirements will mostly likely need to be met before disbursing funds at this stage:
- Manufacturer’s Invoice or Floor plan Financing Source’s Payoff Statement on new unit(s) with the amount of the floor plan payoff, mailing address, wire instructions (if applicable), and serial numbers of the unit(s).
From this draw’s proceeds, your title agent will most likely be instructed to pay off the Retailer’s cost of the Home (from manufacturer’s invoice or floor plan financing payoff statement) directly to the Manufacturer/Floor plan Finance Source. The balance is normally disbursed to the general contractor. If site improvements are also being paid with this draw the general contractor/retailer will mostly be paid for work in place for an amount not to exceed the stated line amount on the Manufactured/Modular Home Construction Cost Breakdown.
The final draw funds all remaining completed improvements normally represents at least 20% of the construction contract/purchase agreement. The general contractor/retailer should advise the Lender’s Construction Servicing Department when the project is complete, so they can order the final inspection. The general contractor/retailer can provide these items the lender will mostly likely request in one form or another.:
1. Affidavit of Commencement (Texas Only)
2. Affidavit of Completion and Indemnity
3. Affidavit of Completion and Acceptance
4. Final Waiver and Release of Lien
5. Borrower’s Certification
6. Final Survey showing home location and improvements (if required)
7. Initial Inspection (commonly referred to as an Open Hole or Prepour Inspection) completed by HUD Fee Inspector or Evidence of a 10 Year Warranty
8. HUD-NPCA-99-A: Subterranean Termite Treatment Builders Certification and Guarantee completed by the general contractor/retailer
9. HUD-NPCA-99-B: New Construction Subterranean Termite Soil Treatment Record completed by a pest control company (if Soil Treatment is used)
10. HUD Acceptable Water Well Test Results including Lead, Nitrates, Nitrites, Total Coliforms, and E.Coli/Fecal Coliforms (if Private Well)
11. Local Authority Approval and/or Final Inspection of Individual Septic System
12. HUD 92544: Warranty of Completion
Upon receipt the lender should order the Final Inspection by an approved HUD Free Inspector and confirm the property is complete.
So that’s what’s involved when including the FHA One Close. Find an experience loan officer to assist you in creating home ownership opportunities in your community.
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