It was also a great way to meet some of our neighbors … something that I had hoped might happen when I started this blog. Since living rooms are small, these meetings are by invitation only but I will publish notes from them so that everyone can share the information gained.
Also, I am available to talk to anyone about any aspect of this conversion, individually or in small groups. I've learned a lot about this process but I don't know it all … however I enjoy the process of tracking down information and will try to find answers to anything I don't know. If you want to be on the invitation list or would like to get together, email me at jwycoff@me.com … or call 870-656-4141. (Also, if you would like to host a meeting, please contact me.)
What's the downside? Because so many negative things have been said about conversion, I always ask about the downside of this process. Michael's response mirrored what I've heard from others:
- If you can afford to purchase your lot, you will eliminate the ever increasing space rent and have an opportunity to share in future appreciation … a pretty sure bet for California coastal real estate … especially in the aftermath of the real estate crash of 2008. Plus the interest is tax-deductible.
- In a high space-rent park such as Mesa Dunes, some people may find that their mortgage payments are less than space rent and the mortgage payments on their homes (if they have a mortgage.)
- Selling a "package" of home and lot in the future should be easier because more financing options will be available … as long as the price is in line with area values. The high space rent here in the park is a significant deterrent to many potential buyers.
- If you decide not to buy your lot, you stay on your current lease.
Appraiser of Last Resort: One of the most comforting aspects of Michael's discussion was about how lenders actually protect us from unreasonable prices by reflecting the market and being, in effect, the appraiser of last resort. Before Murphy Bank will lend to anyone, they will do an appraisal of our home (which includes our unit, the lot it's sitting on and the park it's in). This appraisal values our home in comparison to all other housing opportunities in the area. (See "Blind Appraisal" below.)
Extreme example: If the lot price were $400,000 and we wanted to get $150,000 for our unit, the total price would be $550,000. In some areas such as the park in Avila, that would work just fine but it wouldn't work here. Neither Murphy Bank nor any other bank would be likely to loan $550,000 on a home in this park in today's environment.
Because we know how this works … and we can ask the advice of people like Michael … we would never buy the lot in the first place at that price. We'd just keep renting.
More likely example: Lot price: $200,000, Unit value: $75,000 - $125,000 for a total value of $275,000 - $325,000. Sunrise Terrace has many units for sale in that range and it is the closest to us in geography and amenities. From the beginning, Richard Laxton (Michael's boss) has said that he would expect the lot prices to wind up in the $150,000 - $200,000 range.
In that range, we are relatively sure that the market would support the total value of our home and lot and can make our decision based on our personal situations and inclinations.
Pismodise Aside: I checked out Pismo Dunes … the senior park across from the beach that mainly has smallish park models with only a whisper of space between them … called "Pismodise" in three recent magazines. Out of the 48 units for sale, 20 were priced over $100,000 and 15 of those were over $125,000. Space rents were less … $475 to $675 (at a 6% annual increase). The beach is nice but I didn't think it looked like Paradise at any price and it made me doubly happy to be at Mesa Dunes.
Notes on Financing: Michael reaffirmed the basics of their financing process: 20-year mortgages with 20% down, with mortgage and impounds (tax, insurance and HOA fees) limited to 28% of income and good credit history. Mortgage insurance is not required.
Downpayment: the 20% downpayment requirement can be met through cash or equity in your home. If the lot price is $200,000 and you own your home valued at $50,000 or more, you have enough equity to meet the downpayment required. (See notes in the "Murphy Bank is a specialty bank" note below.)
Note for early purchasers: The Mesa Dunes owner has offered a 10% discount for residents who open escrow within the first 90 days after conversion. This would make the price of a $200,000 lot, $180,000. The $20,000 does NOT count as downpayment … however, you would then only need $45,000 equity in your home.
Note if you have a mortgage: You can wrap your current mortgage in with the new loan for your lot … however, you still have to meet the 20% downpayment requirement and the 28% income requirement. Michael will be there to help you work out the specifics of your particular situation when the time comes to pencil out the details.
Interest Rate and Points: If the lots were for sale today (and they won't be for another year and a half to two years), the interest rate quoted by Michael would be 5.75% … or a little over what the "standard" rate is. They offer the same rate to "stick-built" homes.
Michael also said to plan on 3 points as the cost of the mortgage. So, if the lot price turns out to be $200,000, it would take about $6,000 to initiate the loan.
We will have to revisit the interest rates as we get closer to the actual time to make our decisions.
For comparison sake, I plugged general information into Quicken.com and got this back … however, Quicken is not an option in our situation.
Low Income Loans: Murphy Bank "loves" MPROP loans where the state program loans the first 50% of the loan at 3% simple interest and Murphy picks up the rest of the loan amount at their standard rates.
Murphy Bank is a "specialty bank" and their Mission Statement states: To continue to be recognized as one of California's best specialty banks with a focus on small businesses and individuals, emphasizing customized services to busy people through long term relationships.
The reason this is important to us is because they can do things other banks can't (or won't) …
- they can make loans on mobile homes older than 1976. (This was a surprise to me and means more people can use their units as part of their loan-to-value calculations.)
- they can make loans even if a permanent foundation is not in place. (Although, in the long run it is probably a good idea to get this done since future financing will most likely require it … and, if the "big one" comes, it might make a difference.) More about permanent foundations here.
- they are not limited to "standard" valuation tools such as the "Blue Book" (NADA … National Auto Dealers Association "Blue Book"). Every property goes through an individual appraisal. (See "Blind Appraisals" below)
- they can work with individuals who may have one-time credit challenges such as foreclosures if all else looks acceptable.
- they are familiar with Mesa Dunes and are willing to loan as soon as lots are available for sale while all other lenders I've talked with are going to wait until enough sales have been made to establish a baseline of park valuations ("comparables").
"Blind" Appraisals: This sounds like a joke coming on but actually refers to the process of getting individual properties appraised by contacting a third party that picks the appraiser. The bank never actually makes contact with the individual appraiser and thus cannot influence the valuation.
