You try and you try to research everything you can before making a huge decision like buying a house. But, boy, the things they don't tell you could fill a book! At the suggestion of my father-in-law, I'm going to try to cover some of them. So, if you live in Alabama (local regulations may vary) and you're interested in getting a manufactured home, read on.
We're a young couple with a lot of debt. We work hard and pay our bills, but they aren't going anywhere any time soon. After living with my parents for an extended amount of time, we decided we had to get out on our own. We definitely didn't want to rent -- that's just throwing our money away -- but we didn't want a massive mortgage either. But how to proceed?
Together we decided to look into foreclosures. I call auctions sometimes for my day job and many of the houses go for amazing prices. The catch is that many houses that go into foreclosure haven't been taken care of in a long time. While we could definitely afford such a house, the amount of effort and money that would be spent fixing it up to livable standards was... Appalling to say the least. The one house we found that didn't need a complete makeover sold so fast the Realtor didn't even get a chance to show it to us.
Feeling pretty bummed, we started toying with the idea of a modular or manufactured home. It was something we'd thought of doing when we first got married, but things fell through. This time I researched and researched and researched. We were confident that everything would work out beautifully this time. After much agonizing we picked the footage and the layout and all the little details that make a house a home. It would have smooth sheet rocked walls and flat ceilings, wood floors, upgraded appliances, the works. And the price tag was not much more than the foreclosed homes.
But, then everything went sideways.
In the end, as talked about elsewhere, we came away with a much smaller home. It has carpet and linoleum and battens and textured ceilings; there are standard appliances and tiny-tiny tubs. The final price was about $15,000 cheaper, and our monthly payment is less than the rent on our apartment in Birmingham, but it still stings a bit. To cope, we told ourselves that we would take that money and do what we'd originally planned and fix it up little by little. That's what this blog's all about.
But before we can get there we had to have the home installed.
And to have the home installed became a ridiculous maze of time tables and blank checks. These are things than nobody talks about, but everyone is supposed to know. I hope this helps you, dear reader, so you're more prepared than we were.
1) Down payment percentages vary depending on the kind of house you're getting. For a standard stick-built mortgage you typically need 10% down, unless you're getting an FHA loan in which case you probably only need 3.5% down. A manufactured home is in the middle at around 5% down. Your down payment is more than just money off your total mortgage, though. It can mean the difference between whether you can get your house or not. We had saved up enough money for our original choice of house. When that fell through we realized that the difference between the down payment for one house and the other was a cool $1000. That can go a decent way toward all the bills discussed below. However, because of our debt-to-income ratio, that $1000 made a HUGE difference. If we hadn't put down the full amount regardless -- now amounting to 6.54% -- we wouldn't have been able to get the new house either. Banks look more favorably on you when you pony up a larger down payment. Money covers a multitude of sins.
Down Payment: $3500
2) The interest rates on manufactured homes can be up to four times what you would pay on a stick-built mortgage. As of the time of writing, the average interest rate on a stick-built home is 4.51%. Interest rates on manufactured homes can range from 6.25% - 18% depending on your credit score.
Interest Rate: 10.99%
3) You're going to need a dirt pad if you aren't having the house assembled on a permanent foundation. Back in the day you could just shim up the uneven bits with wood and cement blocks, slap some skirting on it, and call it a day. No more, my friends. And, despite the extra money, it really is a good thing. In Alabama it rains. A LOT. It's raining right now. It was raining yesterday and probably will be tomorrow. The dirt pad acts as a foundation, leveling and raising the land so that water can not run freely under your house. This protects you from erosion and movement due to seasonal not-quite-flooding.
Dirt Pad: $400 (discounted)
4) You cannot just have someone come out and install a septic tank. You'd think you could dig a hole on your own land and do whatever you want to with it, but it doesn't work that way. The health department is very interested in just what the hell do you think you're doing? You have to get an engineer to come out to your land and do a test in order to get a permit in order to tell the septic guy not only where to dig but how much he gets to charge you. The test in question is called a Perc (Percolation) Test. A certified engineer comes out and digs a few holes. They then fill the holes with water and see how long it takes the water to drain off into the surrounding soil. If your land passes the Perc Test, your septic installer determines how much it's going to cost to do the job based on the stats the engineer gives him. It could be $2000. It could be $5000.
Engineer: $275
Permit: $50
5) Something else you'll learn when it comes to utilities: Everyone wants your money, but no one wants to do the work.
A) The water department will gladly come out and install a meter for you. However, that's all they're going to do. They will not run water lines. They will not hook up to your house. They will not even stick around to test and make sure everything's a go. They will take every penny they can, though. Granted our county has some of the highest rates in the state, but I had to fight tooth and nail just to get the price I did. At quadruple the rate of the nearest city, a lot of people don't believe me when I tell them how much I paid for a meter and a basic hook-up. Always call your local water authority before you assume you have enough money to go ahead with your home purchase. In addition, there's usually a waiting period. In our case it was four weeks before we could get access, and there were only three homes ahead of us. After that you'll have to pay someone else to run your lines. Usually your septic installer will do so for a "small" fee.
B) The power company will put up a pole. They will run the lines. But they will not hook the power up to your house. Neither will the house installer. You will have to hire an electrician. Electrical rates may vary, as do codes.
Water Access: $1460 (discounted)
Water Lines: $300 (discounted)
Electrician: $210 + $3.60 per foot of wire
6) We were planning on staggering our utility installations while we did some renovating and saved up more "wiggle-room" money. Yeah, no. It's a scheduling nightmare. You have to have your water and septic and power and even your cable ready to go around the time of installation. Why? A government inspector must come out and make sure the company has assembled your home correctly within 10 days. That means that toilets must be able to flush. The air conditioning must have power. The skirting needs to go on after that, but can't if you still need to run cable and internet wires. But those things can't really be installed until the home is. How can the water guy hook up the pipes if there's no house? How can the cable guys test their lines if there's no power? Unfortunately, all the different people you have to deal with work on different schedules and there are probably jobs ahead of you. Everything has to be put together like a puzzle so that all the pieces are in place at the right time.
Septic: $2500
Power: $325 + credit-based deposit
Cable: $50 + 1st month's service
7) No one talks about this, but the mortgage company is going to want more than just your down payment up front. They want your insurance. We actually ended up having to switch insurance companies because of this. I'd been with my last insurance company for ELEVEN YEARS, but this really screwed us over. Many mortgage companies offer home insurance through a third party, but it's likely someone you've never heard of before and you can't tweak the policy to suit your needs. In addition, it adds about $100 to your monthly payment. You do have options, though. You can absolutely go out there and get your own home owner's insurance: At a price. If you don't bundle your insurance into your mortgage, you must pay an entire year's premium up front and provide proof of insurance to the mortgage company. With a single exception, every insurance company I talked to charges around $1200 a year. The exception (which we went with) charges less than half for the exact same kind of policy. The catch? We had to switch all our insurance over. They couldn't insure our house without insuring our cars as well.
Insurance: $450
8) This is company specific, but if you have your home and land inspected by Cook's Pest Control within the first six months of installation, you get a MAJOR discount on termite protection. For an existing home the size of ours, it normally runs just shy of $900 for the first year and $260 a year after that. Because we're treating termites before they get to the home (we found them in the surrounding tree stumps) we get the "new home discount." Not only that, but they have a 110% guarantee that if anything gets through the ring of death, they will fix or replace the damage up to 110% of the value.
Termite Protection: $199 + monthly bug control
9) Unless you live in a big city, you are probably going to have to buy your own roadside garbage can. But don't rush out to Lowe's and get one just yet. Go by the city or county "solid waste" office and talk to them. Many have regulations on what you can and can't use. If you don't get the memo, you could be hauling your giant plastic bucket right back to the hardware store. In addition, many waste management offices require a refundable deposit. Ours was kind enough to tell us that it was only refundable if we kept our account in perfect standing for a minimum of three years, and then request the refund in writing from the county commissioner's office upon the occasion of our relocating. The lesson here is to always read the fine print.
10) FOL: Family Owned Land. We're fortunate that we didn't have to go out and buy our own land. My parents have several acres out in the country and they've offered for years to let us put a home on one. There are a few things you need to know about FOL, though.
A) The mortgage company will require a copy of the land deed and a letter from the property owners granting you the right to place your home and utilities on the lot. It will in all likelihood need to contain the names, addresses, and phone numbers of all grantees listed on the deed, as well as either a deed reference or a short legal description. Also, don't forget to mention the length of time. Is it in perpetuity? Do you only have 10 years to find your own land? My parents worded it so that we have a lifetime interest in our plot, but you need to hash that out in detail with the owners well before you start the buying process.
B) Your mortgage will be something called a chattel loan. This means that you cannot use the land as collateral or your down payment because you do not own it. That in turn means that you must come up with all necessary monies on your own. While I'd really recommend this no matter your land situation, for some people it may make a difference.
C) Because you do not own the land, and because the land is not tied up in your mortgage, by law you cannot roll your utility installation into the mortgage. All those lovely things I mentioned in points #3 - #7? You're on your own.
D) You can make one of two decisions when it comes to property tax. You can take a bunch of stuff down to the courthouse and pay it yourself. Or you can let the property owners pay it and you pay them. Option #2 has the potential to increase their land value while lowering the overall amount you would owe, but you need to do your own research as land and housing values vary.
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