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By Kirk Gollwitzer

 

As a local real estate broker, I recently had the unique opportunity to work on a challenging transaction involving a construction loan for a modular home paired with the purchase of a vacant lot. 

For some buyers, this can be one of the few affordable paths to homeownership, allowing them to create their dream home. While rewarding, this process comes with important considerations and potential pitfalls.

Securing financing for vacant land is vastly different from obtaining a mortgage for an existing home. Lenders are often cautious with land loans because there is no built-in collateral, like a house, and land values can vary greatly depending on location and market trends. To navigate this process effectively, buyers must first obtain pre-approval, ensuring they are financially prepared for what lies ahead.

In my experience, buyers often partner with modular or manufactured home dealers who guide them through finding land and designing their homes. These dealers frequently connect buyers with preferred lenders and closing attorneys and may offer financing options like VA, FHA, or USDA loans. While these connections can be helpful, it is critical to evaluate them independently. The choice of lender and attorney should remain the buyer’s decision, based on thorough research and consultation—not convenience.

Another vital component is due diligence. Buyers must ensure that inspections, such as well and septic evaluations, land surveys, and zoning verifications, are conducted properly. While some dealers may offer to handle these tasks, my advice is simple: maintain control and oversight. Relying solely on a dealer can leave important details unchecked. As a broker, I see it as my duty to ensure these steps are completed thoroughly and in the buyer’s best interest.

Building a modular or manufactured home involves additional layers of complexity. Buyers must account for site preparation, utility hookups, zoning, permitting, and compliance with homeowners association rules, where applicable. These elements often come with hidden costs and time delays. Understanding the differences between modular and manufactured homes is equally important. Modular homes are built in sections, assembled on-site, and must meet local building codes. Manufactured homes, on the other hand, are built off-site and adhere to federal HUD standards. These differences impact everything from placement and design flexibility to financing options.

The financial aspect of construction loans can also catch buyers off guard. For example, in a project involving a $300,000 loan and a $50,000 land purchase, typical closing costs might include an appraisal fee ($500), mortgage insurance premium ($1,500), attorney’s fees ($1,000), title insurance ($700), origination fees ($3,000 or 1% of the loan amount), property taxes (approximately $1,500), and homeowner’s insurance ($1,200). These costs can add up quickly, so reviewing them early is essential to avoid surprises at closing.

Once the land purchase is complete, buyers transition to the construction phase. This stage often requires coordinating with the home dealer, builders, and subcontractors. It’s a process that demands organization and proactive management. As a broker, I’ve seen buyers struggle during this phase as they shift from being guided through the land purchase to managing a complex construction project on their own.

One of the most striking realizations I’ve had during these transactions is how much buyers are left to fend for themselves once the land purchase is complete. While my role as a broker involves protecting and guiding my clients through land acquisition, I often feel a sense of concern, knowing that they are now at the mercy of the dealer and various contractors. It underscores the importance of careful planning, strong communication, and detailed contracts.

Building a modular or manufactured home on a purchased lot can be a rewarding way to achieve homeownership, but it’s not without its challenges. By staying informed, maintaining independent oversight, and planning meticulously, buyers can turn this seemingly complex process into a successful and fulfilling journey. 

Kirk Gollwitzer is a local real estate broker serving Tryon and the surrounding areas.