MH FINANCING: A Cautionary Tale of Retailer Assisted Financing
“Leaving financing to a customer’s own devices is not a winning strategy”
Most shoppers seeking manufactured home ownership will need financing and will be confused as to how that is to be accomplished. A salesperson that has developed a comfortable and trusting rapport with the home shopper, possessing a basic knowledge in the various types of manufactured home and modular home financing programs available, will be more effective in securing the home sale.
There are multiple loan type options available for manufactured home purchasers. Often the loan type is dependent on the intended home placement site and how the home will be installed on that site. The “full service’” professional and knowledgeable salesperson will be instrumental in guiding his/her customer to a loan program compatible with the chosen placement site and their personal financial circumstances.
The salesperson/retailer who understands the intricacies, advantages and disadvantages of the various programs and and assists the homebuyer throughout the financing process will offer more value to the homebuyer than the typical seller, as well as preventing missteps in the fragile process that can be disastrous to the seller and/or the home purchaser.
Most any retailer who has been around the industry for a period of time will have experienced hazards, many associated with financing, that can derail a transaction at the most inappropriate time with serious negative economic consequences for the retailer and/or the home purchaser: One example follows:
“The Quiet Period”- Suppose you have successfully sold a new manufactured home, received a deposit or down payment, received lender approval and authorized the manufacturer to build the homebuyer’s new home.Seems like a perfect scenario, right?
Most likely everything will go as exactly planned. However, sometimes the lender’s approval can be problematic. Or even rescinded, depending on the customer’s credit activities during the period between the loan approval and the actual loan closing, which occurs after the home is built and delivered to the customer’s site (usually a period of a few weeks). Often this might be described as “the quiet period.” The customer’s credit activity during this period could possibly jeopardize the loan that has been approved. How so?
It used to be the case that when you applied for a loan, the lender ran one credit check to determine the applicant.s credit history as well as existing debts to determine whether the applicant’s income and expenses would meet the lender’s required debt to income ratio criteria.
Fast forward to the new underwriting era we live in today and the lending process is very different. More often than not, the lender is going to check credit and figure monthly payments just like the old days. However, the lender is then going to check again, a “soft inquiry,” right before closing, for new trade lines or inquiries.
What the lender fears is that the customer will incur additional debt during “the quiet period.”- Financed purchases of automobiles, furniture, etc., or acquiring a new credit card could very well change the lender’s debt to income ratio requirements, and in turn, disqualify the loan which was previously approved. Loss of income or change of employment during this period could also invalidate the approval during “the quiet period.”
Does this really happen? You bet! – Almost one-fifth of all mortgage borrowers, including those with solid credit scores and debt to income ratios apply for at least one new trade line during this period, said Equifax in a 2013 study. “Many borrowers simply don’t realize how this new undisclosed debt impacts their ability to qualify for their mortgage.”
(Author’s advice): Losing a financing approval after ordering a new manufactured home and placing that home onto the customer’s private property can be devastating, not only to the retailer. But also to the homebuyer. The retailer/salesperson can keep that from happening by counseling every home purchaser to observe the “the quiet period,” which will end after the loan has been funded,
