Mobile Home Park Down Payments

The source of down payment funds to purchase a mobile home park is a question posed by a number of investors on a regular basis.  There are many creative buyers looking for ways to acquire a property with as little out-of-pocket as possible.  The general rule in commercial lending is the funds for down payment must be in cash, 1031 exchange accounts, or open lines of credit and evidenced prior to closing.  The closing attorney or title company will require that the funds required for closing determined by the settlement statement are to be deposited into their escrow account in order to record the note and disburse funds.

We have seen many investors use equity lines or business lines of credit as their source of funds for down payment, closing costs, and reserves.  These are considered equivalent to cash in a bank account.  There is typically no seasoning requirement on these lines as long as they can be proven to be accessed by closing.  Since mobile home parks are an income producing property and the net income they generate is typically required to support the debt service, the additional personal liability the borrower will be taking on by accessing the line of credit will not affect underwriting and is taken into account when the final approval and loan commitment is issued.  We have closed loans in which the property does not support the debt and we take into account the borrower’s personal income and liabilities to approve the loan.  In this instance, the additional monthly payment on the line of credit does have an impact and must be considered in the debt-to-income calculation.

Many times a borrower will ask whether they can collateralize unrelated real estate that they currently own.  This is not an acceptable structure in traditional commercial loan programs.  A local bank may consider this on a case-by-case basis.  We suggest that the borrower work with their bank to create an equity line or cash-out refinance on their property prior to closing.  Based on the current lending environment, there is very little “out-of-the-box” flexibility when it comes to the amount of cash in a purchase.  Prior to the sub-prime mortgage problem, a few lenders would consider up to 10% of the purchase price to be collateralized by an unrelated property as a note created by the seller.

In circumstances where the borrower will take title as an LLC, partnership, or other corporate entity, lenders are able to take into account the total liquid assets of all members/owners of the entity.  We have closed loans where one or more of the members of an LLC want to contribute a portion of the down payment funds, but do not want to be personally liable on the note.  If these individuals have less than a 10% ownership position, we do not require that they sign as a personal guarantor, but will evidence their liquid assets and use these funds to meet the down payment requirements.  The borrowers with 10% or greater ownership will be documented and will sign as guarantors.

We are continuing to finance smaller parks up to 90% LTV at higher than market rates where this makes sense from a cash-flow basis.  For competitive interest rates, expect to have 20% to 25% in cash at closing for the down payment. 

STAR CAPITAL CORP.
Steve Murden
14 East Campbell Avenue, Suite 240
Roanoke, VA 24011

Phone: 877-297-2230  Fax: 703-991-0072

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