Loans for kit homes are different from regular new build houses. With a kit home, you don’t need to start building from scratch, instead, you construct a kit home using prefabricated parts. In the property market, kit homes attract more investors and first-time buyers. Why? Kit homes already come in sections, you’ll just have to piece it together to make a home. It can save you a lot of money if you are on a budget compared to traditional construction. It’s faster and takes lesser time to finish your home. By reading this article, you’ll find out why some lenders are not that interested in giving home loans to kit homeowners.
Most Lenders are Cautious
Lenders consider the risk that can come with borrowing for a kit home. If anything goes wrong at the construction stage, your land is the only leftover as security for the loan. However, in most cases, the value of your land is not enough to cover the loan.
But don’t worry because you can work around this. Lenders will give you two alternatives. One is that they will let you borrow funds once you have finished construction on the kit home or you need to show them proof that you have built a lot of equity in your land before approving your home loan application.
The Conflict in Payment
Most lenders depend their approval on loans from the conditions on how kit home manufacturers want to be paid. Almost all kit home builders want you to pay them in full for the materials. In most cases, they offer few financing details and you end up putting up a lot of money upfront to get the home. However, you can opt for a construction loan. Lenders will give you portions of the money you need, depending on what stage the construction the property is in. Some kit home manufacturers will correspond to this model– providing you with the materials you need to complete a phase. Then, you can get the money from your lender for the next phase and use the money to recompense the next stage of the kit home. Take note that you will need to hire a licensed builder to do this. Most lenders do not offer this type of loan if a licensed builder is not involved in the project. So, it’s either you purchase the entire kit home upfront and apply for a loan that covers the land and the construction or you can try the construction loan where you will match the payment with your kit home manufacturer’s distribution model.
How Many Percent Can I Borrow?
How much loan you can take depends on what type of borrower you are. If you are a licensed builder, 90% of the combined value of the land and your construction costs can be borrowed. If you are looking for low a doc loan, it falls to 80%.
If you won’t be using a licensed builder, then you can only gain access to 75% (LVR) on products. With that, you have to pay a significant deposit before you can start building your kit home. And usually, you will need to pay for the entire kit home upfront.
Lastly, another great important tip, if you plan to get a kit home loan, you can look for a lender that handles specialized loans for kit homes. Or choose a kit home manufacturer that offers finance and home loan options specifically tailored for kit home builders.