Using Your Land as a Down Payment on a Manufactured Home

If you already own land, you may have your down payment without realizing it. Many manufactured home lenders let you use the equity in your land in place of cash. This is often called a "land-in-lieu" loan, meaning land instead of a cash down payment. For a lot of buyers, it means bringing little or no money to closing.

Here's how it works and what to think about first. Vision Homes, a manufactured and modular home dealer in Fayetteville, NC, wrote this guide for local landowners.

Why lenders want a down payment

A down payment shows the lender you have a real stake in the home. It lowers the amount you borrow, which lowers the lender's risk and often your rate. Lenders usually measure this as a percentage of the total purchase price.

Land you own free and clear, or with only a small loan on it, has value too. When that value is pledged as part of the loan, it can count toward, or even fully cover, the down payment the lender needs.

How using land as a down payment works

1. Tell us about your land early. Bring it up in your very first conversation. Whether you bought it, inherited it or were given it, it can change what you need to bring to closing.

2. Gather your paperwork. You'll need the deed, and if there's a loan on the land, the most recent statement. If the land is in more than one person's name, every owner will usually need to be part of the loan.

3. Appraisal and title check. The lender orders an appraisal to see what the land is worth and a title search to make sure the title is clear. Big liens or title problems can get in the way, so it helps to know about them up front.

4. Check that the land works for a home. The lot has to allow a manufactured home and have a workable plan for water, sewer or septic, power and access. Zoning and county health rules apply.

5. The land becomes part of the loan. The land and the new home both secure the loan. The equity in the land is applied toward your down payment.

6. Close and build. After closing, site work begins and your home is delivered and set. See what happens after closing →

How much equity do you need?

It depends on the lender, your credit and the price of the home. In many cases, land equity covers the full down payment. If it covers only part of it, you can make up the difference in cash. We'll help you run the numbers once we know what the land is worth.

The downside: your land is on the line

There's one big thing to understand before you choose this route. Because your land secures the loan along with the home, if you can't make your payments, you could lose both the home and the land. With a home-only chattel loan, the land isn't part of the loan.

That isn't a reason to avoid land-in-lieu, but it is a reason to choose a monthly payment you're truly comfortable with. Other things to keep in mind:

• The appraisal may come in lower than you expect
• Not every lender offers land-in-lieu loans
• Clearing up title problems can take time
• Family land often means getting every owner on board

Is it right for you?

Using your land can make a new home possible without years of saving for a down payment. If you own land and want to see what it could do for you, call Vision Homes at (910) 323-8222 or get pre-approved online.

See all of our financing options →