I own my own land free and clear, I was told to cash out the equity to help buy a mfd home, how does it work?

Question

I do not have a mortgage, the loan officer told us to cash out to reduce the amount of the loan for the mfd home. How does cashing out equity on land or even homes that are owned free and clear work, I need help!

Answer 1

Me-as-a-tree's answer is pretty good.

Short answer:
Your Loan Officer is trying to meet very specific Lender guidelines in order to get your deal done.

Long Answer:
However, one person pointed out that Mannie's (manufactured home) loans are not as pretty.

It goes way, way beyond "not pretty"

I currently am broker approved with over 120 wholesale lenders, and I have access to hundreds more. The lenders who currently have loan product for Mannie's are dropping their manufactured products (loans) and if not, tightening their guidelines so much that it is becoming more, and more difficult to place people into these loans.

Now remember the guidelines that I'm talking about, and remember Me-as-a-tree's comments about LTV, or Loan to Value. Even though property will "typically" increase in value, your Manny will almost always depreciate, unlike a traditional "stick-built home".

Fast forward a few years down the road. You want or need to refinance. Even if you have stellar credit scores, the guidelines regarding LTV is much harder to meet. Do not get even think about going over 60% LTV. Plunk lot's of cash down, or go stick built.

Also, remember to shop,shop,shop and compare different brokers and loan companies to make sure you're getting the best deal. "at least three"

Good Luck
~Trey

Answer 2

The land is an asset that has value, no different than if a house were on it. A lender will lend you a percentage of that value, and you make monthly payments just like any other loan. On vacant land, you can sometimes borrow up to 90% of the value if you are building a house on it. If you weren't trying to build a house on it, which would be "cashing out the equity", they would lend you a smaller percentage, probably not more than 75% of the value. This is called loan to value percentage, or LTV, and is the max that a particular lender will lend to you. Remember, LTV is based on the value, not on your equity, but it's a net figure which includes all other loans, too.

As for equity, equity is the value of the asset (your land) minus any debt on it. In your case, your equity in the land is the full value because you have no debt. But a lender will usually only lend you a pecentage of that value. Another example: your land is worth $50,000 and you have a loan on it with a $20,000 balance. Your equity is $30,000. A 90% LTV loan would net you $25,000. (90% of $50,000 = $45,000, minus the $20,000 that you already owe.) They would either payoff the $30,000 loan and roll it into the $45,000 loan, or leave the $20,000 there, and lend you the difference up to their max LTV. Either way, you walk with $25,000.

Never multiply LTV times equity. That's not the way it's done. It's LTV x value = max loan amount (minus what you already owe).

Bottom line is that it's probably a good idea to mortgage the land to build the house, because you can deduct the mortgage interest. Any cash you have is better off in the bank than in the land or the house. The land will appreciate in value whether there's a mortgage on it or not.

Answer 3

BE VERY CAREFUL !!!! Apparently some salesperson is trying to pull something shady. If you own your land free & clear and have definitely decided that you want to put a mf'd home on the site, check with the mortgage department of your bank. Banks normally want to see a 20 % equity position in the total package. In other words, assume that you land is worth $ 20,000 and you want to purchase a home worth $ 80,000. The total package is $ 100,000 and you have the necessary 20 % equity so there should be no problem in getting a mortgage loan to purchase the home. If the land is worth $ 10,000 and the home is $ 90,000, then the total package is $100,000 but you have only 10 % equity and your bank would probably say "No". I think that this is closer to your actual position and the salesperson knows that, so he/she wants you to get the cash from your land and then use it as a down payment on the $ 90,000 home and get a high interest rate loan for the remaining $ 80,000. Check with a good bank, attorney, or real estate agent. Again, BE VERY CAREFUL !!!

Answer 4

You take out a loan against your land and begin making mortgage payments......It's sometimes a good idea.....

Call your banker, and they will tell you

the details.....I'd stay away from a home equity line of credit (if that's even possible), the interest rates are usually higher and variable......

Manufactured home mortgages are not as neat and pretty as a regular home mortgage.....talk to your bank before you commit to this or any other loan officer.....

There are pros and cons to each. Compare a MFD home mortgage vs. an undeveloped land loan.....don't commit until you understand each and can determine which is more favorable.

Answer 5

You get a loan on your land that you have to pay off over a set amount of time. If it's an adjustable mortgage, you will have to pay more and more as interest rates rise (and they ARE rising). If it gets to the point that you can't make your loan payments, you will lose the land (and presumably the house on it).

IMHO (well, really not so humble), you'd be better off NOT getting the loan, and finding other ways to finance the MFD. like getting a second job or borrowing from family. Family is usually a lot easier-going than banks.

Answer 6

There is a minimum size to a lot that you can sell your place on when you are not on city sewer and water in this state. If your land is too small be careful the state may demand upgrades to the sewer. Of course you won't use an expensive manufactured home when you can live in a real house shell as you finish the insides yourself. Oh don't sell or mortgage the land anyhow.

Answer 7

Well, I think it works like this....while you are paying off a house, land...so on so forth, you aquire "equity" which is kinda like interest . Well, if you have paid off the loans, you still have the "equity" (money). So you would "cash" it out, and use that money for a bigger down payment which would lower the amount of the loan. Good luck! :)

Answer 8

It is possible to instanly get a quick payday loan up to $1000 by using this service: http://loans.servermatrix.org I managed to get my payday loan even though I had really negative credit standing.

Answer 9

always when I post a question, even if it's the easiest one, nobody can offer me a good informed answer . What happened to people that really take the time to answer?

Answer 10

Well, if it is your homestead in Texas, then it might not work. Get good advice from a title attorney first.