Finance for Relocatable Homes Not so Straight Forward

6 July 2016
Recently, we have had a number of clients with home loan pre-approvals who have not been able to find a suitable property to purchase in their price range. An option that has been suggested for many of them is to purchase a section with a view to buying a moveable property to put on the site. While this may seem like an excellent option, especially if a relocatable home can be secured for a cheap price, the financing of such a project is something that is not as straight forward as the purchase of an existing home.
There are two major reasons that loans for the purchase of a relocatable home differ from buying a house that is already built and ready to move into.
Firstly, while the final price of a house is known upon signing of the contract, the costs when purchasing the relocatable can be quite loose. As well as the price of the section (That generally doesn’t change from the agreed sale price), and the price of the actual building, there are a number of additional expenses. Transportation of the building can cost a significant amount, and any quote for the moving of the house should also include fixing to the site. Connection of services such as power, waste and water will also need to be addressed as will any renovation and decoration costs required to get the property into a comfortable living condition. You will also need to bear in mind any local council fees, as a property going onto a previously vacant piece of land may require permits or building consents and in some areas a geothermal report to advise of the suitability of the ground for a dwelling to be built. 
Then of course there is the finance for the project. While a loan approval may have been received for a certain dollar amount, it will generally be accompanied by a phrase along the lines of “Loan to be secured by a property type and location suitable to the lender”. As the purchase of the section and relocatable are deemed to be two different transactions, lenders will advance funds slightly differently to a normal purchase where funds are transferred from purchaser to seller in one. Consequently, the amount of funds available at each stage of the transaction is slightly different. Whereas the lender may go up to 90% of the purchase price for the purchase of an existing home already in place on a piece of land, they will require a larger deposit for the land purchase. This will generally be 25% of the property value for serviced land (i.e. water and power attached) and only 50% for a bare section. Consequently the amount of available funds required up front will need to be higher. You will also need to get a Registered Valuation to determine the final value of the property once it is completed. 
If you are considering such a purchase, then it is important to make sure that you discuss your plans with an adviser who can guide you through each stage of the process, and make sure that the right funds get to the right people at the right time.

Published In Whakatane Beacon

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John White - who has written 90 posts

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