Mobile and Manufactured Home Loans
Financing is challenging for any homeowner, and that’s especially true for mobile homes and some manufactured homes. Those loans are not as plentiful as standard home loans, but they are available from several sources — and government-backed loan programs can make it easier to qualify and keep costs low.
Buying a home might be the largest investment you make in your life, and housing prices are above several hundred thousand dollars in many markets.
But manufactured homes are typically more affordable than site-built homes, so they make home ownership accessible. Especially for consumers with lower incomes and those who live in rural areas (where contractors and materials are not readily available), manufactured housing may be the only option.
Mobile, Manufactured, and Modular
When discussing home loans, the terms you use with lenders can be important. What you call a “mobile home” is most likely a “manufactured home” (even though the home is — or once was — mobile). For informal use, either term works, but most lenders avoid lending on property categorized as a mobile home.
- Mobile homes are factory-built homes made before June 15, 1976. They may be very nice homes, but they were built before regulators required certain safety standards, and most (but not all) lenders are reluctant to lend on those properties.
- Manufactured homes are factory-built homes built after June 15, 1976. Those homes are subject to the National Manufactured Housing Construction and Safety Standards Act of 1974 and are required to meet safety standards set by the U.S. Department of Housing and Urban Development (HUD). Those rules are often referred to as the HUD Code. Manufactured homes are built on a permanent metal chassis and can be moved after installation (but moving the home after installation can interfere with financing).
- Modular homes are factory-built homes that are assembled on-site and are required to meet all of the same local building codes as site-built homes (as opposed to the HUD Code). They are typically permanently installed on a concrete foundation. Like site-built homes, modular homes tend to hold value and appreciate more than manufactured or mobile homes, so it’s easier to get loans for modular homes.
Where to Borrow
There are several ways to get funding for manufactured and mobile homes. As with any loan, it pays to shop among several different lenders. Compare the interest rate, features, closing costs, and other fees of every loan carefully. Especially with mobile home loans, the type of loan (or the lender you work with) is important.
Retailers: Builders that sell manufactured homes typically arrange financing to make it easier for customers to buy homes. In some cases, your builder’s relationships may be your only option for funding when purchasing a new home. However, it’s wise to ask your builder for a list of several other (non-affiliated) lenders.
Specialized lenders: Several mortgage lenders specialize in loans for mobile and manufactured homes (and land, if necessary). Although any lender may be able to fund your purchase, specialized lenders are more familiar with the aspects of a manufactured home purchase — so they’re more willing to take applications for those loans. You’ll most likely need to work with a lender focused on the manufactured home market in the following situations:
- You won’t own the land.
- You won’t permanently attach the home to a foundation system.
- You are buying a home that is not brand new or one that has had modifications done.
- You want to refinance existing manufactured home debt, and any of the above apply.
Standard mortgage lenders: If you’re buying a home and the land it sits on, and the home is permanently installed on a foundation system, you’ll have an easier time borrowing. Many local banks, credit unions, and mortgage brokers can accommodate those loans.
Get recommendations for good lenders from people you trust. If you’re not sure who to ask, start with your real estate agent, employees and residents at mobile home parks, and people you know who have borrowed money to buy manufactured housing.
Chattel loans are often used for mobile and manufactured homes, especially when the home is going into a park or manufactured home community. A chattel loan is a home-only loan (as opposed to a loan for the home and land together).
Those loans are technically personal property loans — not real estate loans.
That said, chattel loans are also available when you own the land and borrow for a home separately.
When shopping with lenders, find out if you’re getting quotes for a chattel loan or a real estate loan. Interest rates on chattel loans tend to be higher than rates on real estate debt, but there are pros and cons to each option. A study by the Consumer Financial Protection Bureau (CFPB) found that loan amounts and processing fees were 40 to 50 percent lower on chattel loans when compared to mortgage loans, but the annual percentage rate (APR) on chattel loans was 1.5 percent higher.
Advantages of chattel loans include:
- You don’t need to own the real estate, which can keep your loan smaller (although you’ll likely pay monthly site fees).
- Processing costs should be lower than closing costs on real estate debt.
- The closing process is typically faster and less involved than closing on a real estate loan.
Disadvantages of chattel loans include:
- Interest rates are higher, so your payment and interest costs will be higher than if you use an equivalent real property loan.
- Repayment periods may be shorter (with a repayment term of up to 15 or 20 years, for example — although some lenders allow longer loans). A shorter term results in higher required monthly payments, but repaying debt faster keeps interest costs low.
Manufactured home dealers and specialized lenders commonly offer chattel loans, and the U.S. Census Bureau found that 80 percent of new manufactured homes in 2015 were titled as personal property. But some lenders offer both personal property loans and real estate loans. Speak with several lenders, and ask about the pros and cons of titling a home as real estate instead of personal property.
Government Loan Programs
Several government-backed loan programs can make borrowing for a manufactured home more affordable. Assuming you meet the criteria to qualify for those programs, you can borrow from mortgage lenders who get a repayment guarantee from the U.S. government — if you don’t repay the loan, the government will step in and pay the lender.
Government-backed loan programs are probably your best option for borrowing, but some mobile and manufactured homes will not qualify.
FHA loans are insured by the Federal Housing Administration (FHA). Those loans are especially popular because they feature low down payments, fixed interest rates, and consumer-friendly rules. To be eligible for an FHA loan, several criteria must be met:
- The home must have been built after June 15, 1976.
- The home must comply with the HUD Code and meet other local requirements. Modifications to the home can bring it out of compliance.
- Each section of the home must have the red Certification Label (or HUD Label) attached. For example, on double wide homes, two labels are required.
There are two FHA programs available for manufactured home owners.
FHA Title II loans include the popular 203(b) loan — also used for site-built homes — which allows buyers to make a down payment as small as 3.5 percent. To cover the cost of the government guarantee, you’ll pay an up-front mortgage insurance premium as well as ongoing mortgage insurance with each monthly payment. You need decent credit scores to qualify for an FHA loan, but your credit doesn’t need to be perfect. Plus, you can use gifted money to fund your down payment and closing costs, and you can even have the seller help out with those costs.
Title II loans are real estate loans, so you’ll need to buy the property and home together, and the home must be permanently installed on an approved foundation system. Loans can last 15 to 30 years.
FHA Title I loans are available for personal property loans — useful when you won’t own the land. However, if you’ll place the home on a rental site, your lease agreement needs to meet FHA guidelines. For example, you’ll need an initial lease term of three years, and you must be notified of any lease termination with at least six months’ notice. Required down payments might be as low as five to 20 percent, but that requirement varies from lender to lender and depends on your credit score. Additional requirements for a Title I loan include:
- The home must be the borrower’s primary residence.
- The installation site must include sewer and water service.
- Brand new manufactured homes must include a one-year warranty.
- A HUD-approved appraiser must inspect the lot.
Title I loans can be home-only loans like chattel loans, but they can also be used to buy a lot and a home together. Maximum loan amounts on Title I loans are lower than maximums on Title II loans, and loan terms are shorter: For a single-wide home and lot, the maximum repayment term is 20 years.
VA loans are available to servicemembers and veterans, and they can be used for manufactured and modular houses. VA loans are particularly appealing because of the ability to buy with no money down and no monthly mortgage insurance (assuming the lender allows it, and you meet credit and income requirements). Skipping the down payment means you’ll have higher monthly payments — and you’ll pay more in interest — but in some cases it makes sense. For a VA loan on a manufactured home:
- The home must be permanently attached to a foundation.
- You must buy the home together with the land it sits on and title the home as real property.
- The home must be a primary residence (not a second home or investment property).
- The home must meet HUD Code and have the HUD Labels attached.
FNMA loans are increasingly available for manufactured homes, as that agency plans to expand funding for affordable housing options. Ask your lender if any new programs are available for your upcoming purchase.
Different Lenders, Different Rules
Although some of the loans described above are backed by the U.S. government, lenders are allowed to set rules that are more restrictive than the government guidelines. Those “overlays” may prevent you from borrowing, but other banks might use different rules. That’s one more reason it pays to shop around — you need to find a lender with competitive costs, and you need to find a lender who will accommodate your needs.
Especially when it comes to manufactured homes, lenders may tell you that you don’t qualify for government-insured programs. That may be true, but it’s best to verify with several FHA or VA lenders before you give up on those options.
Some examples of areas where different lenders set different rules:
- Loan to value ratio: You might be able to put down as little as 3.5 percent, or you might be required to make a 20 percent down payment.
- Credit scores: Depending on your credit scores, some lenders might be unwilling to work with you, while others set different interest rates or down payment requirements based on your credit.
- Type of home: Some VA and FHA lenders are unwilling to lend on manufactured homes, but they may be more open to modular homes. Some are reluctant to finance single-wides, but they will fund double-wides or larger homes.
- Tenant occupancy: If you plan to live in a park or community, lenders may want to know how many residents rent compared to how many own their homes.
- Chattel vs. mortgage: Some lenders only offer chattel loans, so that’s the only product they’ll offer you. Likewise, some lenders do not make personal property loans.