Contingency Funds
New construction and contingency funds, a confusing mix. There are different kinds of contingency funding that your lender may build into your loan. There can be a contractor’s contingency, available to the contractor to cover cost overrun of the contract price. These funds may be unconditionally available to the contractor. There may also be a lender’s contingency that is available to the borrower, to cover any unplanned expenses that may not be included in the builder’s contract. These funds if not used, may be used to pay down the original amount of the loan.
The point is, there is a possibility of a 15% contingency fund for your contractor and a 15% contingency fund for you as a borrower. This is a double edged sword. On the one hand, the funds are available to cover unforseen expenses. On the other hand, with contingency funds built into your loan, it may restrict the amount you can borrow. The total dollar amount you “might” spend will need to be within the total limit you can borrow based on the equity in your property.
Some banks that are accustomed to working with the modular housing industry are willing to reduce the contingency fund built into your home loan. The portion of your loan that covers the construction of the home is a fixed cost. The home is built at the factory and the price is a given. A contingency fund on the construction cost of the home is not necessary. This frees up funding for your project. With a reduction in contingency funds needed for your home, you might be able to add on that wrap-a-round porch you always dreamed of. Just one more reason to consider building a modular home.
