Recently I was asked if there is a loan available in Santa Cruz for replacing an old and run down manufactured home in a park with a brand new unit.

In this specific case, the borrower owned an old manufactured home in Santa Cruz (Aptos, actually) which he owed a small amount of money on. It was in a park where the owner also owned the land. It was his primary residence. The land itself was worth more than the loan amount owed. He had good credit but did not have enough money to buy a new unit for cash and have it replaced.

After contacting HUD regarding this (they administer FHA loans) it was determined that they allow for this type of situation in Santa Cruz (and any other county, for that matter). The FHA 203k allows a borrower to replace an old manufactured home and refinance the old loan into the new one as part of the process. This includes the cost to purchase the new manufactured home as well as the placement of the new unit onto the existing foundation of the old manufactured home.

Minimum Home Loan Amounts

As not much was owed, and as the borrower did have some cash to put into the deal, one question that came up was, what is the lowest loan amount a borrower could apply for?

In general, there is no limit for the lowest amount a lender in Santa Cruz will lend you. But a good rule of thumb would be $50,000.

Why is that?

It comes down to a series of complicated rules that the government imposed on lenders. In addition, banks face profit issues with small loans.Minimum Home Loan Amounts

One of these rules is that in general the government stated that you cannot charge a borrower more than 5% of their loan amount in fees to get the loan. These fees include title company fees and processing and underwriting fees (my preferred lender =charges $875 for underwriting and $775 for loan processing, or $1650 combined).

They were looking out to help homeowners not get taken advantage of form unscrupulous lenders. Seems straight forward for a 500k loan not to have fees that exceed 25k right? But what if the loan is 50k, with the title company cost ($900-1700) and standard processing and underwriting fees ($1,650), it’s pretty easy to go over the 5% of 50k or $2,500 and be close to breaking some major rules with the Fed.