Bring Us Your Kit Homes

Bring Us Your Kit Homes

One of the things we pride ourselves in here at Fairfield is the ability to lend on ‘alternative’ property types. A call I got this week is a perfect example. A broker called me to ask if we would do a construction loan for a kit home. I have to admit I was a bit taken aback. My first thought was that a kit home was not a real building. I thought it would be of inferior construction and build quality. But, after some thought and research, it started to make sense.

For the owner/builder a kit home is a great way to save money, use your own sweat and end up with a home that has built in equity. Search around the web and you’ll find dozens of companies offering pre-fabricated, panelized homes that are every bit the quality of contractor built homes. Typically these kits are for the frame of the home. Once you’ve assembled the frame you’re one-half to one-third complete with the finished home. They make the process of construction manageable for the average person.

I’m not here to pitch the kit home industry. However, when it comes to financing the construction of a kit home we may be able to help. Typically a borrower will have a hard time finding a construction loan for an owner/builder project from a traditional bank. We are not bound by the cookie cutter approach of most banks. It’s possible that we can lend your borrower 100% of the construction costs with about half of the up-front cash required to buy a new home.

Here’s an example: the typical home loan these days requires a 20% down payment. In the Portland market the median home price is $290,000 (Altos Research). That means a down payment of about $58,000. That’s out of reach for a lot of people.

In a hard money construction loan the borrower would only need to have about 45% equity in the lot they’re going to build on. The average lot in the outer suburban Portland area is around $60,000. They would need to have $27,000 to pay down on the lot in order for the loan to stay within our LTV parameters. That’s less than half the cash required in a straight home purchase. In addition, if they did much of the work on their own, your borrower could end up with a $290,000 home with only a $190,000 to $200,000 cost. Your borrower could then get a conventional mortgage with better than 30% equity in the home.

Of course we would pay particular attention to your borrower’s experience and possible trade skills in executing the construction of the home for underwriting purposes. If necessary, we may require the borrower to involve an experienced contractor to assist them in the process. We also maintain a rigorous construction draw process to make sure the home is progressing as planned before dispersing the funds. However, if you borrower has the right amount of experience, a kit home is a valid way to go.

I would encourage each of you to begin marketing yourself as a broker who can get construction financing for kit homes. It could be just the thing to give you a niche advantage in the marketplace.

Richard Sundvall
Senior Loan Coordinator
Fairfield Financial Services, Inc.
971-227-1023 voice