Construction Insurance for Building a Modular Home

Why You Need Construction Insurance

Here’s a risky way to save money building a modular home.  Select a modular dealer and contractors who are not properly insured.

Imagine that a neighbor’s child is seriously hurt when he falls into your cellar hole before your modules are set on the foundation. Imagine that one of the trucks delivering your modules strikes your neighbor’s car causing serious damage.  What if the crane company drops one of your modules rendering it unusable? What if a member of the set crew is seriously injured or killed when he falls from your roof?  Or what if the plumber fails to securely connect a pipe, which causes severe water damage before the leak is discovered?

Accidents and mistakes can happen when building a home, regardless of the type of construction. Since the right insurance can mitigate the damages, you need to ensure you’re thoroughly covered.

Require Everyone to Obtain Construction Insurance

This is best done by requiring everyone involved in building your home to have insurance. (Here’s a previous blog that elaborates on the insurance you need.) Making this a requirement won’t prevent disagreements about who is responsible for coverage, but it will increase the likelihood that one or more of the insurers will take on this responsibility, which is a lot better than you being saddled with the liability.

Don't forget to obtain proof from everyone working on your modular home that they have proper construction insurance.
Don’t forget to obtain proof from everyone working on your modular home that they have proper construction insurance.

Verify Construction Insurance Coverage

Making insurance a requirement, however, isn’t enough. You need to verify that each party has a current policy with sufficient coverage. To do this you need to insist on receiving a “certificate of insurance” directly from each party’s insurance agent. Getting a copy of the certificate directly from the insurance agent will protect you against being duped by a dealer or contractor whose policy has run out, since it is not difficult for someone to doctor a photocopy of an expired certificate.  You might be surprised how often this happens, mostly because builder insurance is expensive. There will be no sympathy from the insurance company, however, if you file a claim against a policy that was not renewed. After receiving the certificates, you should ask your own agent to review the coverage. They should be able to determine if the coverage includes sufficient liability insurance and workers compensation insurance.

Secure Your Own Construction Insurance

Since you need to have coverage from everyone working directly on your project, you also need to follow the same procedure with any subcontractors you directly hire. In addition, you should obtain either a “builder’s risk” policy or its equivalent for yourself, since this will provide better coverage against theft and vandalism than an ordinary homeowner’s policy.

For more information about modular home construction insurance during its construction, see  Selecting a Modular Home Dealer, Selecting a General Contractor, and Financing a Modular Home in my book The Modular Home.

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Modular Home Checklists

There are many things to learn the first time you build a modular home.  But if you’re like most homebuyers, you won’t get the full benefit of what you learn, since you’ll likely only build one home.

But you can benefit from what I’ve learned over twenty-eight years building more than 1,200 homes.  To start with you can read my book, The Modular Home, which gathers all this information in one place.

Use these modular home checklists to guide you through the process of building a modular home.
Use these modular home checklists to guide you through the process of building a modular home.

Take Advantage of My Experience by Using My Modular Home Checklists

Of course, it’s hard to use a book efficiently the first time you use the information.  That’s why I’ve created several checklists that cover the most important steps.  Below is a link to each of the checklists.  There’s also a link to this list on the home page of The Home Store’s website.  I hope you find these modular home checklists helpful.

  1. Ensure You Are Ready Willing and Able to Build a Modular Home
  2. Selecting a Modular Home Dealer
  3. Your Modular Home Dealer Customer References
  4. Selecting a Modular Home General Contractor
  5. Your Modular Home General Contractor References
  6. What to Include in Your Modular Home Legalese
  7. Selecting the Right Modular Home Plan
  8. What You Should Ask Modular Home General Contractors
  9. Reviewing Your Modular Home Floor Plans
  10. Reviewing Your Modular Home Elevation Plans
  11. Modular Additions
  12. Building a Universal Design Modular Home
  13. What Your Modular Manufacturer Needs from Your Contractor
  14. How to Air Seal a Modular Home
  15. Making an Offer To Purchase for a Building Lot
  16. Your Municipal Water and Sewer Connections
  17. Reviewing Your Modular Construction Drawings
  18. Potential Permits and Supporting Documents
  19. Your Modular Dealer and Financing Tasks
  20. Your Permit and General Contracting Tasks
  21. Omitting Materials from the Modular Manufacturer

For more information about all the topics covered in the checklists, see my book The Modular Home.

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Should You Tear Down and Replace Your Home

Why Tear Down Your Home     

Are you considering replacing your existing home with a new modular home?  You have lots of company.  Many of us are happy with our neighborhood, local schools, and commute to work.  We’re also attached to our property, often because we like its size and views.  If only our homes were big enough for our families.  If only they had layouts that worked for how we live.  If only they had modern features and better energy efficiency.  If only we could fix our problems with some reasonable and affordable remodeling.

But what if remodeling is not viable?  What if you’d prefer a new home?  If so, you’ll likely consider purchasing a building lot – if not in your neighborhood, at least in your town.  But what if your town is well established with a home already built on virtually every lot?  You might then consider “tearing down” your home and replacing it with a brand new modular home.

Can You Tear Down Your Home

Before you contact a modular builder, you should learn what your town’s zoning, planning, and building departments allow.  Their regulations are partly in place to protect the existing character of your town and neighborhood.  They dictate whether and how you can tear down your existing home.  They also determine what you can build as a replacement.  This usually includes the size, footprint, square footage, height, and style of your home.

If your home is in a historic preservation district, you may be prohibited from tearing down your home, or at least required to adhere to the architectural standards of your neighborhood.  In fact, your abutting neighbors will likely have some input into what you can build.  It’s often best to speak directly to them in advance of pushing ahead.  If your property is part of a subdivision that is governed by a homeowners association, make sure it’s bylaws do not prevent your home from being torn down.

You should also check with your gas, electric, and water utilities to learn how you can disconnect these from your home.  You should consult with your fire department to see what they need. You should expect your town to require an inspection for toxic materials, such as asbestos or an old diesel tank.  And you should speak with your board of health, if you have a septic system, to see what’s needed to comply with its regulations.

If you skip these steps, and assume you can tear down your home, you may waste a lot of time designing a home you cannot build.

The Cost to Tear Down Your Home

Be prepared to pay between $5,000 and $25,000 to demolish your existing home, haul the materials away, and cover the disposal fees.  You’ll pay even more if your home has asbestos or other toxic materials.  You’ll also likely need to pay for a demolition permit.

How to Finance the Tear Down and Replacement of Your Home

If you are financing your project, you must qualify for a construction loan and mortgage in terms of income, debt, and credit.  (Check out my blogs that explain what you need to know about financing a modular home.)  In addition, there are a couple of financial considerations that are unique to demolishing and replacing your existing home.  Take these seriously, since they’ve tripped up many customers in the past.

Unless you own your home outright, you cannot tear it down without first paying off the existing mortgage or obtaining written permission from your current lender.  However, your lender will not grant permission if the loan balance is more than the value of the land, since the land will be the only equity left after the demolition.  Should you tear down your home without paying off your loan or obtaining permission, your lender will invoke the default clause in your mortgage, which will create some serious legal headaches for you.

If you have an existing mortgage, you will need a loan that covers the balance owed on your existing home, the demolition, and the construction of your new home.  A consideration for your lender is whether you will have sufficient equity in your property after the demolition and repayment of your current loan balance.  The equity is needed to serve as a down payment on your new loan.  If the outstanding balance is substantial, however, you may not have enough equity, unless you have another source of funds

A second consideration for your lender is whether the value of your finished home will be sufficient to support the total of your new mortgage. The lender needs to be confident that if you default on your loan, they can recover the balance by selling your property. They will determine the value of your new home by obtaining a professional real estate appraisal.

For more information about why and how to tear down your home so you can replace it with a new modular home, see Why Build Modular and Financing a Modular Home in my book The Modular Home.

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Modular Home Insurance During Construction

Modular Home Insurance                                               

When building a modular home you need insurance coverage for five parts of the project:

  • The delivery of the modules
  • The set of the modules on your foundation
  • The work done to your land before and after the modular delivery (tree clearing, excavation, foundation, etc.)
  • The work done to complete the “button-up”  of your modules after the set
  • The completed home after you receive a certificate of occupancy from the building department

Most of this coverage should come from the companies that are completing each step.  The delivery and set  of the modules, including the crane, should be insured by the modular manufacturer and/or modular dealer.  To ensure your modular home insurance is in place, you need to ask each modular dealer you are considering to have their insurance company mail you an insurance binder.  It is best to receive it directly from the insurance company, since it is fairly easy to fake the forms. Make sure the coverage includes sufficient liability insurance and workers’ compensation; ask your insurance agent for the recommended amounts. This will limit your potential liability if the dealer or one of his subcontractors is not fully insured and something goes wrong during the set, such as an accident causing a serious personal injury or significant property damage to your home.

You need to follow the same procedure with your general contractor (GC) and any subcontractors you directly hire to complete the work to your property and the button-up of the modules. Secure a certificate of insurance from each of your contractor candidates before making your final selection.  Ask your own agent to review the coverage.

You should also insist that your contracts with your modular dealer and contractors state what modular home insurance coverage each of you is obligated to provide. You should accept responsibility for obtaining a builder’s risk policy or its equivalent. The contractors should accept responsibility for providing general liability insurance and, if they have employees, workers’ compensation.

Modular Home Insurance with a Builder’s Risk Policy

The advantage of a builder’s risk policy over a typical homeowner’s policy for your own modular home insurance is that it automatically provides coverage for theft of building materials and supplies as well as vandalism. You should direct your insurance agent to provide this additional coverage even if you opt for a homeowner’s policy. Since your personal circumstances may differ and your agent may offer other alternatives, consult with your agent.

Modular Home Insurance and Lender Financing

If you are paying for the modules with funds from a lender, which means you are paying by the assignment-of-funds method, your lender will require you to have your modular home insurance in place when you close on the loan. If you are financing your home with your own funds, have coverage in place before your GC begins any work.

If your lender is paying for the modules after the set, the dealer’s insurance should be responsible while the modules are parked on your property before the set, since you will not yet own them. If the dealer does not provide coverage, you should direct your insurance agent to provide it. If you are using private funds to pay for the modules upon delivery, your insurance should provide coverage when the modules are parked on your property, since you will already own the units. You should verify this. Your insurance is less likely to provide coverage when the modules are stored away from your property in a staging area. If you cannot obtain coverage for your situation, ask the dealer for help.

Instruct your insurance company to mail or fax your modular dealer a certificate of your modular home insurance a few weeks before the scheduled delivery. This proves that you have the necessary coverage. The effective date should be set at least 48 hours before the scheduled delivery date and remain in place for at least a week. The certificate should state, “[Dealer’s company name] is loss payee as interest may arise.” The certificate protects the dealer and manufacturer should your modules suffer damage after they are set on the foundation but before your lender pays the dealer. This might happen, for example, if lightning were to strike the modules the first night of a two-day set. Should this unlikely event occur, the certificate ensures that your insurance company would compensate the dealer so he can pay the manufacturer. Once the dealer is paid for the house, he no longer has any insurable interest, so your insurance coverage reverts to you and your lender. The manufacturer’s insurance should cover the modules while they are being delivered to the site. The dealer’s and crane company’s insurance should cover the modules while they are being lifted onto the foundation.

Modular Home Insurance for Personal Property During Under Construction

Do not move any of your belongings into your home before your GC finishes his work without his permission. If the GC agrees, he will ask you to use those rooms he has finished. If you intend to store your things in the basement, he must have already completed all of his work there. Since you are responsible for theft or damage, ask your insurance agent about your coverage.

Modular Home Insurance Costs Less

Modular home insurance during construction will save money compared to insuring a site-built home due to the shorter construction time. The shorter construction period also lessens your exposure to the typical risks that attend construction sites, such as vandalism and the pilferage of construction materials. Vandalism is further curtailed because the modules can be secured more rapidly than a site-built home. The ability to quickly secure the modules also makes it more difficult for someone to steal construction materials. Pilferage is further reduced because of the size of the modules; you cannot walk off with a module in the way you can carry away a few boards of lumber. Completing the home more quickly also reduces your biggest financial risk, that of a personal injury to a contractor working on the job or a neighborhood child playing around the home after hours.

For more information about modular home insurance during its construction, see  Selecting a Modular Home Dealer, Selecting a General Contractor, and Financing a Modular Home in my book The Modular Home.

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Minimizing Appraisal Problems

Appraisal Problems with New Construction         

Over the last few years, obtaining financing has been one of the most difficult problems for builders and customers. Not only have many banks been unwilling to lend, their appraisals for new construction have fallen so much that willing and qualified buyers have been unable to get sufficient financing.

The market is now greatly improved and continuing to get stronger.  More and more banks are willing to lend. But appraisals for new construction can still be a problem. The reason is that the sale price for a “comparable” existing home is often considerably less than the cost of building a new one.

Three Reasons Why There Are Still Appraisal Problems

There are three reasons why new homes cost more than existing homes. Land prices have remained steady in most places because land is a scarce commodity. As Mark Twain pointed out, they don’t make it any more. The percentage drop in the cost of construction labor, where it’s happened, isn’t anywhere near as great as the percentage drop in the price of existing homes. Few construction workers will accept a 40% pay cut. What has been especially surprising, even to seasoned builders, is the sharp spike in material costs. The increase has been fueled by an uptick in remodeling and commercial construction.  The three of these factors keep the cost for new construction higher than for existing homes.

Appraisals for new construction are based on comparing the proposed new home to recently sold homes similar in size and features. Since most sales are from existing stock, appraisals for new homes are often less than the cost to build them. This often prevents banks from lending the full amount needed by the buyer. Unless the buyer has sufficient cash to offset this shortfall, they can’t get a loan for the amount they need to build their home.

Minimize Appraisal Problems by Selecting Optional Features with High Value

Real estate appaisal
Minimize appraisal problems by selecting specifications that add the same or greater value than they cost.

So what can you do about this? It always helps to select optional specifications that add the same value as they cost. It helps even more if you choose features that add more value than they cost. Enlarging a modular home, for example, will almost always add more value than it costs, since factory assembly lines are very efficient. On the flip side, removing something that costs more than it adds in value will also bring the cost more in line with the appraisal. For example, replacing fiber cement siding with vinyl siding will substantially reduce the discrepancy between cost and appraisal. The appraised value of vinyl and fiber cement is comparable in most communities even though fiber cement costs much more. Similar results can be achieved by selecting vinyl windows instead of wood windows or by eliminating cathedral ceilings.

Minimize Appraisal Problems by Adding Other Work with High Value

Adding something you might not need, or didn’t want until the future, can sometimes increase the appraised value more than it costs. For example, if you select a cape design with one or two bedrooms on the first floor and an unfinished second floor, finishing a bedroom or two on the second floor might boost your appraisal substantially more than it costs. Of course this assumes you can afford the additional construction. Building your garage now rather than in the future might stretch your budge more than you prefer, but it may also be the only way to eliminate your appraisal shortfall.

For more information about minimizing appraisal problems, see Modular Home Specifications and Features in my book The Modular Home.

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Turning Gray into Black

One of my earliest customers used to sell homes for a “stick” builder.  His interest in a modular home for his family was motivated by two things:  faster construction time and better cost controls.  However he wasn’t yet convinced that modular homes were better built.  And he doubted they were less expensive, at least to start.  But from his past experience, a stick home always took longer, which cost more money, and often created sizable cost overruns.

Turning Gray into Black for the Builder

I of course agreed with his points about speed and cost overruns, and asked him to tell me more.  He surprised me with a brief anecdote that I’ve never forgotten and often shared with others.

“Let me tell you about my boss.  About once a month we’d have a sales meeting and he’d almost always find an opportunity to tell us that our job was to turn gray into black for the company.  He never tired of explaining that there were gray areas in his customers’ contracts. It was our job to turn these gray areas into black.  The more gray areas the better, since change orders made him most of his money.”

Turning Gray into Red for the Customer

My customer added, “What my boss would never say aloud was what this magic meant for his customers.  By turning his contracts’ gray ink into black ink for his bottom line, he busted his customers’ budgets with red ink.  I’ll be damned if that’s going to happen to me.  Since building a modular home forces you to specify everything in advance, there’s not much chance of being surprised by last minute change orders.”

Turning Gray into Black for the Modular General Contractor

My customer was definitely right about modular homes. (Here is how modular homes help you avoid costly, unbudgeted surprises.) However, as I explained to him, there’s plenty of opportunity for a modular general contractor to write his contract in gray ink for the foundation, site work, button-up work, and construction of site built structures.

Eliminating Gray for the Customer

The real issue is not the type of construction, it’s the type of documentation. Whether you build a stick, log, panelized, or modular home, the only way to avoid the damnable red ink is have your builder fully document the scope of work, specifications, and costs. He should do this by itemizing every detail, and he should specify which items are excluded and which are priced as allowances.

For more information about what your modular home contract needs to include, see here and here and here.

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When a Building Permit Is Not a Building Permit

Recently I took some continuing education courses to renew my Construction Supervisor license for Massachusetts. One of the courses discussed the requirements for contracts between builders and customers. The instructor, who was an attorney, told a story about a builder who had – and then lost – a building permit. I’m very glad this has never happened to any of my customers, and I hope it doesn’t happen to you.

The Building Permit that Wasn’t

The builder sought the attorney’s help after he was denied a building permit for a property he had purchased.  In fact, the building inspector had already issued the builder a permit, but the zoning board required the building inspector to revoke it.  To make matters much worse for the builder, he had already installed a foundation and framed much of the structure – it was a stick built home.

An example of the first two pages of a building permits application
Click Here to See an Example of a Building Permit Application.

The attorney learned that the builder seemingly had done nothing wrong.  He had submitted a complete permit application along with the other required paperwork.  The building inspector reviewed the application and issued the permit.  The builder began work immediately.  But after installing the foundation and framing the exterior of the home, an abutter contacted the town and said the builder’s property was not a legal building lot.  The abutter reminded the town that 20 or 30 years earlier another builder tried to get a permit and was turned down.

The problem was that the lot didn’t have the minimum square footage required by the town’s zoning regulations.  It was about 10 square feet short.  Apparently, the building inspector didn’t notice this when he “reviewed” the application.  (The builder foolishly didn’t verify the claim by the seller of the property that it was a legal building lot.)  After confirming that the abutter was correct, the building inspector was forced, by law, to revoke the permit.

No Solution for the Disappearing Building Permit

The builder attempted to buy the 10 square feet from the abutter, who had plenty to spare.  But the abutter didn’t want a house on the property, not even when the builder offered a very generous payment.  The builder then applied for a variance with the town.  But the zoning board shot down the variance.  Some disagreements between the building inspector and zoning board likely contributed to the ruling.  In the end the builder had to take down the framing and remove the foundation at his own expense.

No Recourse for the Revoked Building Permit

It might surprise you – it certainly surprised me – that the builder did not have grounds to sue the building inspector or anyone else in the town for mistakenly issuing the building permit.  The builder also couldn’t go back to the seller of the property because he had purchased the land for cash without the aid of an attorney and without a written agreement that represented the property as a legal building lot.

The attorney concluded that if you are buying a property, always use an attorney and have them confirm in writing that the property is a legal building lot.  Also, make sure you discuss with the attorney what you need to do to secure a legal building permit.  If a problem emerges later, you will at least have recourse with your attorney.

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Good Cheap or Fast

If you’re like me when shopping for a big item – such as a car, TV, or house – you want the best combination of quality, delivery time, and price. Too bad it’s impossible to maximize all three at the same time, especially when building a home. A builder can build your home with good quality and service. He can also build it fast. And he can even build it cheap. But he can only do 2 of the 3. You’ll have to choose which two are most important to you. Here’s why!

Fast and Cheap

If you want your builder to build your home fast and cheap, his quality and service won’t be as good.  First, he can’t deliver good quality without receiving enough money to pay for the better materials.  Second, he can’t deliver good quality or service without enough money to pay himself as well as his employees and subcontractors for the “extra” time required to properly plan his work and complete his tasks with better craftsmanship.

Fast and Good

Your builder can also build your home fast and with good quality and service.  But he won’t build it as inexpensively as he could, since he’ll need to apply more resources to the project – all at the same time.  Unfortunately this is not the most efficient way to build a home.  Also, it might require overtime pay for his employees.  In addition, your builder will need to convince his other customers to accept delays on their projects, which might cost him some financial concessions.  Worse, if he makes his other customers unhappy, it might cost him his reputation.

Good and Cheap

Your builder can also build your home cheap (“affordable”) and with good quality and service.  But it’s going to take him longer because the only way he can keep his price down is to give priority to his other customers who are not getting your steep discount.  So he’ll squeeze you in as time allows.

You Choose: Good Cheap or Fast

When building a home, your builder can only give you two of these three: Good Cheap or Fast.
When building a home, your builder can only give you two of these three: Good Cheap or Fast.

Which two are most important to you?  If you talk to people who’ve built a home in the past, they’ll say you get what you pay for.  They’ll also mention that if you get it wrong, you’ll regret it for many years to come.  After all, you’re more likely to forget how fast and cheap your home was built than how well it was built.

By the way, if you Google “Good Cheap or Fast”, you’ll find many articles about how this point applies across a wide range of industries.  You can make tradeoffs between good cheap and fast to give you some of each.  But t you can’t have it all.

For more information about deciding between building a home Good Cheap or Fast see Selecting a Modular Home Dealer, Selecting a General Contractor, and Building a Modular Home on Schedule in my book The Modular Home.

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Your Modular Dealer and Financing Tasks

Your Preconstruction Modular Dealer and Financing Tasks

This post will focus on the modular dealer and financing tasks you must complete before you home is delivered to your property.

Building your home on schedule takes every bit as much planning as building it on budget. In fact, if you put a lot of effort into planning both, you are likely to find that keeping on schedule is considerably harder than staying on budget. That is because you can determine what you will get and how much you will spend before construction begins, and almost all – but not all – of the required decisions for building a modular home are reasonably predictable and within your control. This is not true for scheduling, since there are so many other players involved who will not always bend to your will, including the surveyor, engineer, utility company, building inspector, modular home dealer, modular manufacturer, and modular general contractor. You may even find that your own personal and family obligations become an obstacle to maintaining your schedule.

There are two very separable timelines when building a modular home. The first – the “preconstruction tasks” – includes all of the tasks you and your lender, modular dealer, modular manufacturer, and modular general contractor need to complete before your home is set. You are primarily responsible for making final decisions about your modular and general contracting drawings and specifications and for completing those tasks related to obtaining a building permit and financing. The second timeline involves those tasks the GC needs to complete after your house is set. This post and the next two will focus on the “preconstruction tasks” that must be completed before your home can be delivered and set on its foundation.

Female Lender and Couple Discussing Modular Home Payment Terms
If you are using a lender to pay for any part of your modular home, apply for financing as soon as you have enough information to do so

Your Modular Dealer and Financing Tasks

  • Sign a contract with the modular dealer
  • Apply for financing (if you are using a lender)
  • Receive the dealer’s first draft of the modular preliminary plans and specifications
  • Meet with the dealer to revise the modular plans and specifications
  • Specify where the GC wants to locate the electrical meter on the modular home
  • Design the second story floor plan for the unfinished cape or attic
  • Tell the dealer what special building codes are enforced by the building department
  • Tell the dealer what matching materials the GC needs to complete the site-built structures
  • Tell the dealer what rough openings the GC wants framed in the modular home
  • Tell the dealer what site-installed flooring and baseboard specifications the GC wants for the modular home
  • Receive the dealer’s second draft of the modular preliminary plans and specifications
  • Meet with the dealer to sign off on the plans and specifications
  • Authorize the dealer to complete the modular permit plans
  • Pay the dealer the balance of the required deposit
  • Receive the dealer’s modular permit plans
  • Deliver a copy of the bank’s commitment letter to the dealer
  • Deliver a copy of the building permit to the dealer
  • Deliver the bank’s assignment of funds letter to the dealer
  • Authorize the dealer to build the modular home
  • Send the dealer a certificate of insurance
  • Pay the dealer the modular balance due in full
  • Remain present during the delivery and set
  • Complete a walk-through inspection for warranty work and material shortages

For a detailed schedule of when each of your modular dealer and financing tasks must be completed, see Building a Modular Home on Schedule in my book The Modular Home. The chapter identifies all of the players, the tasks they must complete, and the sequence in which the tasks should be done. It also explains your responsibility for completing each of the tasks

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Modular Home Financing – Important Information

This is part three of a three part blog that explains what you need to know about your modular home financing. In my last post I explained the significance of the final modular home payment and option of paying either COD or by an assignment of funds agreement. In this post I add more details.

Modular Home Financing: Whose Name Should Be on the Check

Some lenders insist on making the final modular home payment in the name of the customer even though it’s owed to the dealer or manufacturer. Others allow the name of the modular dealer or manufacturer to accompany the customer’s name. When the modular home payment is in the customer’s name, either alone or along with the dealer’s or manufacturer’s name, the customer must endorse the check before the dealer or manufacturer can cash or deposit it. Modular home dealers and manufacturers almost never accept a check in the customer’s name alone for an assignment-of-funds payment, and only some dealers and manufacturers will accept a joint check. The reason is that when the customer’s name is on the check, the customer unilaterally gets to decide if and when the dealer and manufacturer are paid, which defeats the purpose of the assignment. Given that the modules will already be on the foundation when the check is handed over, the dealer and manufacturer do not want to allow the customer to have this much control. Accordingly, most modular dealers and manufacturers insist that the assignment-of-funds letter state that the check will be issued in their names only.

If your dealer insists on receiving the modular home payment only in their or their manufacturer’s name, bring this to the attention of lenders before applying for financing. The best way to ensure that a lender and dealer can work with each other’s policies is to ask the dealer to give you a sample of an acceptable assignment-of-funds letter before you select a lender. You can then ask each lender to approve the letter. If a lender asks for some modifications to the dealer’s letter or proposes their own letter, and the dealer is not agreeable, you will probably need to find a different lender or dealer.

There are a lot of modular home financing details to attend to with your lender. For example, who gets paid, when you pay, uncooperative lenders, disbursement schedules, personal funds, additional COD deposits, etc.
There are a lot of modular home financing details to attend to with your lender. For example, who gets paid, when you pay, disbursement schedules, personal funds, additional COD deposits, etc.

Modular Home Financing: What if Your Lender Won’t Make a COD Payment

If your modular home dealer and their manufacturer require a COD payment and you are unable to find a local lender to assist you, your dealer is likely to know which lenders will comply with this requirement. To avoid a misunderstanding, you and your dealer should ask the lender to write a letter committing to pay for the balance owed on delivery.

Modular Home Financing: Are You Vulnerable after You Pay for the Modules

You might wonder whether paying the modular dealer and manufacturer in full on delivery or immediately after the set compromises your leverage should you subsequently find something wrong with your home. You certainly do lose leverage. This is exactly why you should shop very carefully for a dealer and not just buy from whoever is the least expensive. Just as you should never buy a car from a dealer who has a reputation of not providing good warranty service, you should never buy a modular home from a dealer who you are not confident will honor their warranty obligations. Regardless of when you pay a dealer, your warranty is only as good as the dealer’s integrity and competence.

Modular Home Financing: Why the Disbursement Schedule Is Important

In addition to verifying that a lender will meet your dealer’s modular home payment terms, you also need to ensure that it will agree to an acceptable disbursement schedule. This schedule states how much money will be disbursed at each phase of the construction process. Most of the details are worked out by the customer and their GC, since the general contractor will require several separate disbursements, but the customer and dealer are responsible for ensuring that the schedule disburses the full amount at the correct time for the modules.

A lender may agree to an assignment-of-funds procedure but then offer a disbursement schedule that fails to allocate sufficient funds to pay the balance due on the modules. Since the dealer is unlikely to agree to a partial modular home payment, you need to inform prospective lenders about the dealer’s payment requirement before selecting one. If a lender’s schedule does not provide you with sufficient funds at the right time, and you call this to the loan officer’s attention before you sign the loan agreement, a lender will usually adjust the schedule to accommodate your needs. After you sign the paperwork, however, a lender will usually resist changing the schedule, which will likely force you to find a new lender.

Modular Home Financing: Why Using a Lender Takes More Time

Keep in mind that it will take longer to receive your home if you use a construction loan because the modular manufacturer will wait for the lender to write its assignment-of-funds letter before putting your home into the production schedule. And the lender will probably wait to write the letter until you have closed on the loan, which likely cannot happen until you have a building permit. As you approach the closing on your loan, do everything you can to prepare your lender to write the letter immediately after the closing.

A couple of weeks before the delivery and set of your modular home, ask the lender to schedule its representative to inspect and approve the modules and disburse the balance due. The inspection and modular home payment will be required by the lender whether the payment terms are COD or assignment of funds.

Modular Home Financing: Why You Might Need to Pay COD When Using Private Funds

When you use a private source of funds to pay for some part of the balance due on a modular home, the dealer and their modular manufacturer are likely to require you to pay for the modules when they are delivered. A COD modular home payment will need to be made with a bank or certified check made payable to the dealer or manufacturer, as instructed by the dealer. Needless to say, you will not be obligated to pay for the modules if the dealer and manufacturer built you the wrong home, a situation that is very unlikely if you select a reputable dealer.

Modular Home Financing: Why an Additional Deposit May Be Needed If You Are Using Private Funds

If you are paying COD, your dealer may require an additional deposit for each module before they will schedule your home to be built. These additional funds will serve as insurance for the dealer should you fail to pay when the modules are delivered. The dealer will use the additional deposit to defray the expenses they will incur if they have to return the modules to his manufacturer or sell them to another customer at a discount.

For more information about modular home financing, see Financing a Modular Home in my book The Modular Home.

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Modular Payment – COD vs. Assignment of Funds

This is part two of a three part blog that explains several things you need to know about your modular home payment.  Part two explains the difference between a COD modular payment and an “assignment of funds” modular payment.

Why Modular Home and Stick Home Payment Schedules Are So Different

When customers construct a stick-built home, they usually do not wait until their home is framed, insulated, drywalled, wired, plumbed, and finished with cabinetry, doors, moldings, and flooring before paying their builder. But that is likely what you will do when you build a modular home. Your dealer will probably obtain a 10-percent deposit from you, but not receive the balance until he has built and delivered your home. As you can imagine, the many thousands of dollars required to manufacture a home makes the final modular payment a very significant event for the dealer and his manufacturer, who must also wait until you pay your dealer.

Although most dealers and manufacturers require a 10-percent deposit before they will build your home, some dealers require a deposit of 25 percent or more for a true custom design, since it could be more difficult to sell than a standard plan should you not honor your contract. Many dealers also require an additional deposit when you are paying with private funds, as will be explained below.

A few modular dealers will give you priority scheduling or offer a small discount if you prepay for the home. But you will only want to take advantage of that if you are sure the company is financially sound. Normally, you would pay off the balance after the home is delivered to your site or set on the foundation.

Why the Final Modular Payment Is So Important to the Manufacturer

When a dealer and manufacturer build a home after having received only a small percentage of the purchase price, they are taking a risk. After all, the manufacturer must pay its vendors, factory production crew, and delivery crew. The dealer must in turn pay the manufacturer, whether or not you pay him, since he will have a contract with the manufacturer.

When a customer does not pay for a home, the dealer and manufacturer are compelled to sell it to someone else, usually at a substantial discount. That is why the dealer and his manufacturer will be very concerned about receiving their modular payment in full for the balance owed on a home as soon as possible after they build it. That is also why all manufacturers prefer to be paid cash on delivery (COD), and many insist on it. Most lenders, however, prefer to make the final modular payment after the home is set on the foundation.

Why the Manufacturer Prefers A COD Final Modular Payment

The manufacturer wants to be paid COD because once the modules are attached to the foundation they are legally no longer considered personal property, which is what they are when they are sitting on their carriers. If you do not pay the dealer after the modules are on the foundation, the manufacturer cannot remove them and take them back to the factory, something the laws for personal property allow with a car. The modules are now real estate, and that difference gives the homeowner a great deal of protection against creditors. The dealer and manufacturer would need to get a court order to remove the modules, and this could take months and many thousands of dollars.

Why the Lender Prefers an Assignment of Funds Final Modular Payment

When using a construction loan to make your modular payment, the lender will need to give the modular manufacturer an assignment of funds letter agreeing to pay for the modular home.
When using a construction loan to make your modular payment, the lender will need to give the modular manufacturer an assignment of funds letter agreeing to pay for the modular home.

Most lenders take an opposing point of view.  They do not want to disburse funds from a construction loan to pay for the modules until they have been set on the foundation. Their view is that they are lending money for real estate, not personal property resting on a carrier.  Many lenders, dealers, and manufacturers have reconciled their conflicting demands by relying on what is known as an “assignment of funds” procedure, in which an authorized official of the lender writes a letter to the dealer or manufacturer committing to pay one of them an agreed upon sum after the modules are set on the foundation and inspected by a representative of the lender. This protects the lender and its customer by making the modular payment contingent on an inspection that the home is correct and properly set. The dealer and manufacturer in turn get the security they need by receiving a written commitment from the lender to pay the dealer or the manufacturer once the inspection is complete. In effect, the dealer and manufacturer are relying on the lender’s obligation to make good on its assignment rather than the customer’s obligation to honor their contract. When done properly, the letter assigns sufficient funds from the customer’s construction loan, usually equal to the balance owed by the customer for the modules, to the dealer or manufacturer and promises to make the modular payment either by wire transfer or with a bank or certified check.

For more information about the difference between a COD modular payment and an “assignment of funds” modular payment, see Financing a Modular Home in my book The Modular Home.

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Modular Home Payment – The Construction Loan

This is part one of a three part blog that explains several things you need to know about your modular home payment.  Part one explains why you need a construction loan if you are using a lender to finance the construction.

Financing Construction of a Modular Home

To build a modular home you will need to pay the dealer for the modules and the general contractor for his services. If you do not own a building lot, you will need to purchase it as well. There are three typical sources of these funds. The first is private funds, such as personal savings, an equity loan on another property, the sale of personal assets, or a family loan. The second is a construction loan from a lending institution, usually a bank, credit union, or mortgage company. The third source is the modular dealer or modular general contractor.

Payment for an Existing Home

There is one very significant difference between paying for an existing home and paying to build a new home – whether it’s built with modules, logs, panels, or “sticks”. When you buy an existing home you pay the seller in full before you take possession of the home. If you use a loan to pay for the existing home, you secure the funds with a mortgage.

Payment for Building a New Home

When you build a home, you make periodic payments as work is completed. You cannot wait until the home is completely finished to pay the modular dealer and modular general contractor in full because they need funds to pay for materials and labor as the project progresses.

Modular Home Construction Loan

You need a construction loan when using a lender to finance construction of a modular home. This allows the lender to make payments as work is completed.
You need a construction loan when using a lender to finance construction of a modular home.

When you use a lender to build a home, they provide these series of payments as work is completed through a “construction loan”. This is a short-term loan usually of four- to twelve-months’ duration. Once the local building inspector issues a certificate of occupancy and the lender agrees that the home is essentially complete, the modular lender pays off the construction loan and issues you a mortgage. Note that the construction loan process protects you and your lender should something prevent the builder, in this case the modular dealer and modular general contractor, from completing the home. Receiving compensation as the job progresses also protects the modular dealer and GC should something prevent you from paying for the finished home.

Although you will still need to obtain a mortgage, you will not need to secure a construction loan if the modular dealer or modular general contractor finances the construction. They are more likely to do this if the modular dealer is completing the GC work, but especially if the dealer or GC own the land. Ownership of the land and responsibility for the construction tasks gives them greater control of the project and reduces their risk should you decide not to purchase the finished home. When you purchase a modular home that is funded in full by the dealer or GC, you are in a sense purchasing an already existing home. In fact, you will not take ownership of it until you pay them when they are done. That is why they are likely to require you to provide evidence that you have secured a mortgage or have the personal funds to pay for the finished home.

For more information about paying for a modular home with a construction loan, see Financing a Modular Home in my book The Modular Home. For a detailed schedule of when each of these tasks must be completed, see Building a Modular Home on Schedule also in my book.

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Keep a Contingency Fund for Surprises

Several of my posts have echoed the theme of keeping a contingency fund to protect yourself against unbudgeted expenses.  But it is so important that I’m going to elaborate.

The Unforeseeable and Cost Overruns

Two young boys with surprised expressions because their parents didn't set up a contingency fund when building their new modular home.
Protect against costly surprises by keeping a contingency fund

No matter how vigilant you are, building a new home always produces a few surprises. Unfortunately, these surprises often result in additional expenses. When they appear you might be tempted to blame someone, but it is not possible for everyone to foresee everything. For example, after the general contractor (GC) begins excavating for the foundation, he might discover that your property contains an underground spring exactly where you want to put your home. To prevent a wet basement, you will need to take some costly and unbudgeted precautions. Unless you had the GC dig a test hole in this area before he finalized his contract with you, neither of you could be expected to have anticipated the problem.

Mistakes and Cost Overruns

There are other sources of cost overruns than the unforeseeable. Failing to read your building specifications closely is a common source. It can cause your home to be built to specifications you do not want and to be missing features you expected to receive. Correcting either type of mistake will add to your expenses. Your contract may include allowances for some preconstruction tasks that are insufficient to cover the actual costs when they are later determined. This could include, for example, completing a property survey or paying for the utility hookup or building permit. If you discover you need to complete these tasks after closing on the construction loan, the dealer and GC will need to stop what they are doing until you come up with the money to complete the tasks.

Other Sources of Cost Overruns

You may be forced to absorb additional costs if you change your mind and, for example, decide you want hardwood flooring instead of carpet. In other cases, a town official could be responsible for your additional costs. For example, the building inspector may require your GC to complete some costly additional work that is not included in his contract because it is not mandated by the building code. You may also incur additional financing costs should the project be delayed by inclement weather, material shortages, or subcontractor scheduling conflicts. Your GC may or may not charge you for these problems, but your lender will almost certainly require you to pay additional interest if you are financing your home with a construction loan.

Plan for Surprises by Creating a Contingency Fund

The complexity of building a home presents so many opportunities for mistakes that it is best to simply plan for them. Although you cannot budget specifically for what you cannot foresee, you can create a contingency fund to protect yourself against unbudgeted expenses. For a modular home, 3 percent of your modular and GC expenses will probably suffice. You can keep a reserve of cash for the contingency fund or ask your lender to include a contingency fund as a budgeted line item in the construction costs. Some lenders will do this even if you do not ask, and even if you do not want them to; many lenders only require this for stick-built homes, since they are historically more prone to sizable cost overruns.

How to Create a Contingency Fund

If your total construction costs already bring you to the maximum amount the lender will give you plus your down payment, the only way you will be able to create the contingency fund is to eliminate other expenses. The best way to handle this situation is to eliminate something you can readily add later. If you get lucky and avoid drawing from the contingency fund during the project, you can spend the money on the eliminated item. If you are forced to tap into the contingency fund, you will spend money you undoubtedly hoped to save, but you will not be forced to come up with money you do not have.

For more information about paying for creating a contingency fund for financing your modular home, see Financing a Modular Home in my book The Modular Home.

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Obtaining a Loan Prequalification or Loan Preapproval

Loan Prequalification

When you begin shopping for a construction loan, ask one or two lenders to prequalify you for a loan. This will give you a good idea of the maximum amount you can borrow, which will help you develop a realistic budget. Prequalification, however, is not a promise of a loan. To prequalify, you must answer a few questions about your income, assets, liabilities, and credit history. Assuming the information you give is accurate and no other issues surface when you formally apply for the loan at a later date, you will probably be approved. Should the lender’s review of your formal application turn up different information, however, the lender may deny the loan approval or offer to lend you less money.

Loan Preapproval

A schedule of payments for your loan preapproval for your new modular home
A schedule of payments for your loan preapproval

As soon as you have selected a lender, consider applying for preapproval of your construction loan. Preapproval takes prequalification one step further and results in a written commitment by the lender. Some lenders charge for this service, some do not. Preapproval comes with a list of conditions you will need to meet for full approval, which usually includes a satisfactory appraisal of your completed home and the requirement that your personal financial situation does not change. If you are preapproved before selecting a modular dealer and general contractor, you will be able to move ahead with building your home more quickly, since the lender can immediately begin to review your construction documents after you make your selections. To secure final approval, the lender must receive written documentation of your income, assets, and liabilities.  It will also need to obtain your credit rating from an approved agency.  In addition, it will want copies of signed contracts with your modular dealer and the GC and, if you are buying a building lot, the purchase and sales agreement with the land seller.  Finally, it must receive an appraisal on your home showing that it is worth what you are paying.

For more information about obtaining a prequalification or preapproval for a construction loan, see Financing a Modular Home in my book The Modular Home.

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Offer To Purchase for a Building Lot

A written offer to purchase for a building lot should include language that allows you to build the home you want, where you want it, and for a price acceptable to you. You should have your attorney include all contingencies that will provide the protection you need. If you are unable to meet one of these contingencies, the agreement should allow you to withdraw your offer to purchase for a building lot and receive a full deposit refund.

A sign indicating that an offer to purchase for a building is welcome
Your offer to purchase for a building lot should be done by an attorney and include contingencies that ensure you can build the home you want, where you want it, and at an acceptable price.

If the seller rejects a proposed contingency, he might accept a less demanding one. For example, the seller might not agree to a contingency that allows you to first obtain a building permit, since this might take too much time. But he might agree to make the offer contingent on the property passing a percolation test or being approved by a wetlands board. If your research indicates that these are the only potential obstacles to obtaining a permit, your attorney might advise you to submit the offer to purchase for a building lot with these contingencies in place.

These contingencies will only help you, however, if you take the appropriate actions they allow you to do. For example, when shopping for a dealer and GC, you will need to make sure their estimates are for the home you want and built to the correct specifications. This means that the dealer and GC must do their homework, as well. For example, if the property has access to town water and sewer at, the GC must determine if the hookups can be made inexpensively or require expensive excavation into the street.

Contingencies to Include in an Offer to Purchase for a Building Lot

  • The buyers can secure sufficient financing for the home they want to build
  • The buyers receive an appraisal at full purchase price by a licensed appraiser selected by either the buyers or their lender
  • The buyers are satisfied with their review of the deed
  • The buyers are satisfied with their review of any easements, deed restrictions, covenants, flood plain designations, or wetland restrictions
  • The buyers are satisfied with their review of the applicable zoning regulations
  • The property has a registered survey, the boundary stakes are in place, and the boundaries are as represented by the seller
  • The buyers are satisfied with their review of the perc test and septic design
  • The buyers are satisfied with their review of any required flood insurance
  • The buyers are satisfied with their review of any water test, whether required for a permit or completed at the buyers’ discretion
  • The buyers are satisfied with their review of the radon test and any required remediation
  • The buyers can obtain a building permit for the home they want to build
  • The buyers can dig some exploratory holes on the property to assess and approve subsoil conditions and are satisfied with their findings
  • The buyers obtain an acceptable written cost estimate from a builder of their choice to build the home they want to build

For more information about making an offer to purchase for a building lot, see Finding and Preparing a Building Lot for a Modular Home and Financing a Modular Home in my book The Modular Home.

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Determine Your Modular Home Budget

If you are considering building a new home and want to determine your modular home budget, I recommend that you start by shopping for financing and a building lot. I’m of course assuming you’ll be getting a mortgage and need to find a lot.

Shop for Financing First to Determine Your Modular Home Budget

By talking to a mortgage lender to determine how much you can borrow, you avoid two common mistakes: setting your sites on a more expensive home than a lender will approve or purchasing less home than you actually can afford. You should ask the lender to tell you in writing how much it will lend, how much the fees and other expenses will cost, and how much you will need to invest as a down payment. However, you should not select a lender until you know your modular home dealer’s and general contractor’s policies.

Shop for a Building Lot Second to Determine Your Modular Home Budget

Two modular home mortgage lenders
If you are financing your new home, talk to a mortgage lender to determine how much you can borrow

Next, look at the local real estate advertisements and call a few realtors to find out what a typical building lot costs in the communities you are considering. To see what you will get for your money, you should visit a few of these lots.

Once you know how much money you will have and how much the land will likely cost, you can determine your budget. Subtract the price for the land from the total amount of money you can spend – loan amount plus your deposit less lender costs – and use this price as the maximum you can afford for all costs associated with building a new home. You should create a contingency fund by allocating at least 3% of your total budget (it would be 5 to 10% if you were stick building). What is left is your maximum budget for your shopping.

Shop for a Building Lot to Determine Your Modular Home Budget

Of course, you could start with a price from a modular home dealer, since this will tell you how much money you have left to spend on land and how much money you need to borrow. Clearly, what you learn on each of these fronts will impact your evaluation of the others. Consequently, regardless of which tasks you take on first, you definitely will need to make some progress on all fronts soon after you begin.

For more information about determining your modular home budget, see Selecting a Modular Home Dealer in my book The Modular Home.

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Modular Home Resale Value

Customers often ask whether modular home resale value is the same as for a comparable site-built home when it is first built and later when it is resold. As far as professional bank appraisers are concerned, the answer to both is yes.

Why Modular Home Resale Value Is Strong

Strong modular home resale value as shown by a toy home resting in a bird nest
If you select a desirable community, a good design with popular amenities, and build it with a quality-conscious manufacturer and contractor, your modular home resale value will be very good with both appraisers and customers

When a bank appraiser assesses the value of a site-built home and a modular home that are built to the same specifications and located in the same neighborhood, she applies the same appraisal rules to both homes and comes up with the same value. Likewise, most people shopping for a new home evaluate a house with their eyes in terms of its perceived quality. Few people have any idea who built a house or how it was built, and most really do not care. Once a house is constructed, its resale value is determined by how it appears to potential buyers, not its pedigree. What matters is whether you select a good house design, equip it with desirable amenities, and have it designed by an experienced modular home builder.  Then your modular home needs to be built by a quality-conscious manufacturer and general contractor and located in a desirable community.  If you do all of these things, you will do very well on your modular resale value with both appraisers and customers. The same holds true for stick-built houses. In other words, neither form of construction has an advantage when it comes time to resell.

For more information about modular home resale value, see Why Build Modular in my book The Modular Home.

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Modular Home Contingency Fund

Although this story may not seem terribly dramatic, it was quite costly and surprising and taught me a lesson I will never forget the importance of a modular home contingency fund.

She Wished She’d Put Aside a Modular Home Contingency Fund

A man bug-eyed with surprise because he didn't have a modular home contingency fund
Plan for the unexpected by setting aside a modular home contingency fund

My customer, a single woman with a young boy, was given a small piece of land by her mother. She didn’t have a lot of money, so we designed her a small ranch. The total price worked within her budget, but barely. The lot certainly didn’t appear to pose any problems. My customer and her mother had spoken to all of the neighbors, who they both had known for years, and learned that the ground water was low and there were no large rocks or ledge. In addition, the lot was completely flat, with only a couple of trees. There was no concern about the cost of a septic system and well, since public water and sewer were on her side of the street. I remember thinking that this would be an “easy” job, something I don’t see a lot with New England’s terrain.

What a surprise it was when we found solid ledge 18 inches below the surface. The best solution was to blast enough ledge to put in a crawl space and connect to the water and sewer. The real problem was that the cost was several thousand dollars, which my customer didn’t have. Fortunately, her bank, which her mother and late father had been using for 30 years, stretched her qualifications and lent her the additional money. Ever since this experience, I never assume that a job will be easy and without surprises. I suggest that you adopt the same cautious attitude and “plan for the unexpected” by setting aside a modular home contingency fund.

For more information about why you need a modular home contingency fund, see Financing a Modular Home in my book The Modular Home.

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Modular Home Appraisal

Sometimes a $20,000 expense will buy you $35,000 of equity for your modular home appraisal.

How a Modular Home Appraisal Can Be Significantly Affected by One Item

A modular home appraisal document
One of the best ways to prevent a low modular home appraisal is to make sure your appraiser is aware of all the upgrades you select

Several years ago, one of my customers received a modular home appraisal on their 2,400 square foot two-story that was $35,000 lower than they were paying us. I was quite surprised by this because most of my customers receive appraisals considerably higher than their cost. I obtained permission from the lender, a local bank that I knew well, to speak directly to the appraiser. What I learned was that she did not know that the house contained hardwood floors and a gas fireplace; I couldn’t tell whether the bank hadn’t told her or she missed the information in her review of the construction contracts. But this only accounted for $15,000 of the appraisal shortfall. The real problem, as the appraiser saw it, was that all of the other comparable homes she had looked had a two-car garage, unlike my customers’ home. My customers had decided to postpone building the garage for two years. The appraiser explained that the absence of a garage reduced the appraisal value of the house by $35,000. Even when I told her that I could build it for $20,000, she held fast to her assessment.

When my customers went back to the bank with this information, the bank qualified them for an additional $20,000 on their mortgage so they could build the garage while their house was being finished. Since the appraisal went up by $50,000 – $15,000 for the wood floors and fireplace and $35,000 for the garage, the loan was approved. I learned two things from this experience. First, appraisers aren’t always aware of all of the upgrades a customer has selected. Whenever I hear of a low appraisal, it’s the first thing I ask about. Secondly, appraisal value is very different from cost. Sometimes, as in this case, spending some additional money can add a lot of appraised value, while at other times, omitting a relatively expensive item can greatly reduce the cost without significantly reducing the value.

For more information about a modular home appraisal, see Financing a Modular Home in my book The Modular Home.

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Will Your Modular Home Lender Let You Act As GC

Before you complete a loan application , verify whether your modular home lender will let you act as general contractor.

A Customer’s Unfortunate Experience with a Modular Home Lender

A woman acting as her own GC after her modular home lender approved her to do so
Your modular home lender might require you to have construction experience, licenses, and insurance before it will let you act as your own GC

Recently a young couple decided to act as their own GC so they could save money. They went to their favorite local lender who told them that the general-contracting work on their home had to be supervised by a professional GC. They said they understood and proceeded with their application. About a month after they applied, the modular home lender asked for a copy of the GC’s insurance policy and contractor’s license, which is required in the customers’ home state. (Not surprisingly, neither of the customers had a license or contractor’s insurance for themselves, since they were not involved with the building trades.) After asking around for a couple of weeks, my customers found a licensed GC who was willing to assume the official role of general contractor for a fee of a few thousand dollars. He also agreed to allow them to complete most of the work and hire their own subcontractors.

Unfortunately, the modular home lender was not satisfied. It now wanted written quotes for all of the work. My customers were surprised by that requirement, since they intended to do much of the carpentry themselves with the help of family and friends. When they finally secured written estimates, the lender said the total cost of the project was now greater than what it could lend them, so they were turned down for the loan.

Verify Whether Your Modular Home Lender Will Let You Act as GC

Fortunately, I was able to recommend a modular home lender who allowed them to act as their own GC and complete some of the work. But, as you would expect, my customers lost a couple of months and incurred a great deal of unnecessary stress. To avoid this problem, be sure to verify whether your modular home lender will let you act as GC before selecting it.

For more information about why you should verify whether your modular home lender will let you act as GC, see Financing a Modular Home in my book The Modular Home.

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