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 that oddball property, think again. While challenging as it may be to purchase an alternative property type with debt, it can be done. Here’s what you need to know if you plan to pursue buying an an oddity…
Manufactured Homes
Considered to be untouchable by traditional mortgage lenders, the manufactured home poses a big risk to the lender, it’s 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, California, this amount goes to $520,950.
The Main Stipulations:
- The property cannot have been previously moved by the seller. In other words the property is ineligible for the FHA if the seller purchased the home and moved it more than once from the time they bought the property from the dealer and attached it to its final destination.
- An engineer’s certification specifically acknowledging the property is permanently affixed to the foundation.
- You’ll need a 640 middle credit score
Modular Homes
A modular home’s construction is more lending friendly. A prefab modular home comes in sections and is built on site at the property from the ground up much like a single-family residence. The inherent construction of this property type already standardizes the affixed component of this property type the lender needs in considering this to be a less risky property type. Modular homes can be finance with an FHA Insured Loan all the way up to 96.5% financing and with Conventional Financing all the way up to 95% on a borrower’s primary home.
The Main Stipulations:
- Mirrors a single-family residence as the lending guidelines for both FHA and Conventional are nearly identical
- FHA requires a middle 620 credit score for this property type as does Conventional
- 10% equity is needed on loan sizes over $417,000 to max county loan limit
Non-Warrantable Condominiums
Occurs when any one person or any one entity specifically owns majority share of the condominium complex as income producing property units ,resulting in ratio of more non-owner occupied units than primary home units. Another example, is the severity of property litigation against the homeowner’s association. Depending on the scope of the type of litigation against the homeowner’s association this can make the property non-warrantable. Alternatively, a little less common scenario is when the subsequent phases of the original proposed condominium project are not complete. Condominium projects are usually completed in a series of phases. For example, if phase one of three phases is complete, but the subsequent two were not complete, this might be an issue with your home loan lender.
The Main Stipulations:
- Lender will need to obtain a homeowner’s association questionnaire form filled out its entirety to determine if the property is lendable-if it is determined that the property is non-warrantable, you’ll need to find a lender who can do a non-workable condo, many now now offering financing for this unique scenario
- Lenders that offer financing on non-warrantable condo loans, should be able to go to 95% financing on primary home with at least a 680 credit score
Converted Rooms/Garage
For lending purposes if the 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, 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 despite the enjoyment of potential buyer might receive buying that type of property. 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:
- Key-if the appraiser signs off works was performed workmanlike manner no further work should be necessary as long as the appraiser does not require any further changes as in restoring the improvement back to its original condition
- Appraiser may decide the non-permitted addition or conversion is a health and safety concern — they cannot sign off on the appraisal until property is made whole-fixing the appraiser’s concerns.
Common Property Conditions That May Cause A Lending Issue
- Empty pool- will need to get filled in and have a safety gate installed around the poo perimeter
- Exposed sub-floor-would new flooring installed
- Carbon monoxide detector-should be installed pre-appraisal inspection otherwise appraiser would revisit for a final sign off
- Shot Roof-third-party independent appraiser would have to provide a report speculating the future economic roof life, three years or longer, works for most lenders
- Exposed wiring/peeling paint-both would have to get fixed prior to closing escrow as this is an FHA hot button topic appraisers are required to look for per HUD
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 mortgage as long as the property is in livable condition and there are no obvious signs of health and safety hazards.
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