There are many reasons to refinance a loan: you may want to switch to a lower interest rate, lower your monthly payments, or draw extra funds. For large loans, like home loans, refinancing can save a lot of money in the long run. This is also true for people who own mobile homes, and don’t have mortgages but instead have “chattel loans.”
A chattel loan finances a mobile home as a piece of personal property rather than as real estate. As a result, the interest rates on these loans are often much higher than what a mortgage loan would command. This higher rate leaves the owner with a big monthly payment and a hefty amount of interest over the life of their loan.
One way that mobile homeowners can lower these costs is through refinancing. By changing your chattel loan into a mortgage loan you can save a lot of money over the long run.
- Many mobile homes are financed by a chattel loan rather than a mortgage, and chattel loans have much higher interest rates.
- Mobile homes that meet certain criteria may be able to convert into real estate and thus become eligible for a mortgage.
- Two of the main hurdles to getting a mortgage on a mobile home are a real estate title and a permanent foundation.
- If you're able to follow the steps needed to convert your loan to a mortgage, you may save a lot in interest and monthly payments.
Refinancing a Mobile Home
Refinancing your current mobile home chattel loan into a mortgage loan can take some work, but it's worth it for the costs you'll save. For one, you can secure much lower interest rates, for the rest of the loan term. Most chattel loans have rates from 7% to upwards of 12%. For most of 2020, rates on 30-year fixed mortgage loans were under 3.5%, and this trend is much the same into 2021.
How to Get a Mortgage
Still, as enticing as a mortgage loan may sound, for a mobile home to qualify for this type of loan there are a few extra hurdles. Though the precise standards may vary slightly by lender and by state, the mobile home will have to meet some version of the following:
- It must be set on a permanent, fixed foundation
- It cannot have wheels, axles, or a towing hitch
- It must have been built after June 15, 1976
- It must have a foundation that meets the Department of Housing and Urban Development's standards
- It must have a real estate title, not a personal property title
- It must be placed on land that the homeowner owns
There are some ways to get around these rules, which we’ll get into shortly. In most cases, the biggest challenge with refinancing a mobile home loan lies in converting the home’s current personal property title into a real estate title.
How to Convert to a Real Estate Title
In some states, there is a clear-cut process for how to convert a personal property title into a real estate title. Most often there are very detailed rules for what real estate is and it is not. In other states, it may be more complex.
Since getting a title is a complex legal process, you may want to enlist a real estate attorney for help. You can also consult a local title company to learn the exact steps.
At the very least, you will need to secure the following:
- A copy of your home’s certificate of origin
- The title to the home
- The deed for the land the home is placed on
After you work with the title company to convert the title, you can then start shopping around for mortgages. You’ll want to focus on lenders who offer loans on mobile homes. Not all lenders offer these types of loans.
What to Do if You Don't Qualify
Though it is much easier to get a real estate title (and a mortgage loan for that matter) if you own the land your mobile home is placed on, there are exceptions. If you lease your lot in a mobile home community or from some form of a landlord, then you might still qualify under the Federal Housing Administration's Title 1 program. To be eligible for a Title 1 mortgage, you must:
- Live in the mobile home as your primary residence
- Be leasing a lot or on a site that complies with FHA rules
- Have an lease in place that complies with FHA rules
- Have a permanent foundation on your home
An affixed foundation can cost as little as $3,500 or up to $12,000 or more. The vendor matters, but the final price depends mainly on the footprint of your home.
The Federal Housing Administration has very strict standards for mobile home lots, sites, or communities, so make sure you choose yours (and your landlord) with caution if you’re thinking about getting a Title 1 mortgage loan.
How Much Does the Process Cost?
There are many costs that come with refinancing your mobile home with a mortgage loan. Most are those that come with any mortgage process, but you may also need to set aside some extra money to cover the extra rules for mobile homes.
First, you should be aware of the effects on your taxes. Chattel taxes and real estate taxes vary, so you may owe more (or less) once you convert your title.
There will also be costs to process and complete your mortgage loan. As when buying a standard home, you'll need to cover a down payment, lender charges, closing costs, and there may be other fees, too. These will depend on your lender or broker, and the fees they charge per loan.
If you hired help at any stage (such as with the title, or a real estate agent to research lots, or to inspect a site), this cost of labor can add to the total price tag as well.
Lastly, if you don't have a permanent foundation, add this cost to the list as well, since you'll need it in order to convert to a real estate title.