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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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