Southern New England Modular Living
Construction Loans & Modular Home Financing
We’ve been building homes in Connecticut and Rhode Island since 1986. Over the course of hundreds of finished projects, we’ve picked up on a number of process details that may prove helpful to know as a buyer moves through their new home build. Welcome to our Guide to Construction Loans & Modular Home Financing
What is a Construction Loan?
Construction loans are short-term loans that fund the building of a residential home. The loan may cover the cost of a building lot, building materials, contractor labor, and permits. Some construction loans, like a construction-to-permanent loan, will transition into a traditional mortgage once the home has been completed.
How does a Construction Loan differ from a Traditional Mortgage?
Term length is different, of course. The initial term of a construction loan generally lasts a year or less, during which time the project is completed. Once the home is complete, the construction loan may transition into a traditional mortgage, whether fixed or adjustable, generally 15 to 30 years.
Repayment structure differs as well. With a mortgage, you start repaying the principal and interest straightaway. With a construction loan, only interest is paid during the construction period.
What will I need in order to qualify?
Just like with a traditional mortgage, you’ll need to meet certain financial requirements and make a down payment.
Documentation: In order to complete a construction loan application, there are a number of records that you must compile. This includes but may not be limited to the following:
- Last two years of W2s. Or, if self-employed, the last two years of tax returns.
- Last two months of bank statements.
- Last two months of 401k statements.
Cash: Lenders will normally finance up to 80% of the appraised total project value.
- When your home is ordered from our factory, SNEML requires a 20% down payment. This 20% is normally paid out of pocket by the homebuyer.
- Liquid funds. In order to receive final approval for a construction loan, lenders will typically require proof that you have a minimum of 10% of the appraised project total value in liquid reserves.
- Note: Money in a 401k account is not considered liquid until it has been withdrawn and placed into a checking/savings account.
Where can I apply?
Not all financial institutions offer construction loans. And only a select few will lend to “Deliver & Set” homebuyers– those who intend to be their own General Contractor and handle the Site Work themselves.
But know that we are here to help! Regardless of whether your project will be Turnkey or Deliver & Set, we can absolutely connect you with a suitable lender. If you would like to explore options, please just send us an email at [email protected] with your contact info and put “Financing Referral” in the subject line.
If I plan to be my own General Contractor, will this impact financing at all?
If you intend to serve as your own GC, the list of potential lenders is narrowed significantly. The overwhelming majority of financial institutions require that a licensed General Contractor, whether SNEML or other, be responsible for pulling permits and seeing-through your project.
In order to secure financing for a Deliver & Set project, in which the homebuyer will be their own GC, the homebuyer must provide the lender with formal quotations for each of the required tasks involved in building their new home build– excavation, foundation, septic, well, utilities service, plumbing, electrical, carpentry, paint, etc. Obtaining these quotes can be a time-consuming process, as it can require coordinating site visits from as many as 6 different subcontractors.
In speaking with representatives from local lenders, we’ve come to find that obtaining formal quotes from subcontractors is the most significant bottleneck of the entire lending process and often drags out the loan approval timeline quite a bit.
We can be of enormous assistance here. Our Preliminary Turnkey Estimate, which is a five-page proposal we share with would-be customers following an On-Site Consultation, is indeed a formal estimate from a licensed General Contractor. Our Preliminary Turnkey Estimate includes each of the aforementioned required fields. So, with one $250 site visit from our in-house GC, we can leapfrog you through the most time and labor intensive part of the loan approval process!
CT New Home Construction Contractor #0017422 | RI Registered Residential/Commercial Contractor #GC-49591