The process of obtaining financing is difficult for homeowners in general, but it is extremely difficult for mobile homes and certain prefabricated homes. These loans are not as common as normal home loans, but they are accessible from a variety of sources, and lending programs sponsored by the government can make it easier to qualify for the loan and keep the costs down.
Regardless of whether you plan to buy a prefabricated house or a modular home, determining the kind of financing that you will use should be one of your top priorities. You may find it easier to settle on a choice if you evaluate the many kinds of loans that are open to you.
Manufactured homes that are going to be moved into a park or neighborhood typically employ chattel loans, which are loans that are only for the home itself and not the property that it is on.
The cost of loans backed by the government for prefabricated houses is reasonable, but not all mobile homes will be eligible for financing.
Consumer-friendly FHA Loans under Title I and Title II are offered to buyers of mobile homes that were constructed after June 15, 1976 and that adhere to all applicable state and federal regulations.
There are a few requirements that must be met in order to qualify for a VA loan for a prefabricated home. One of these requirements is that the home must be attached to a foundation, and the buyer must also own the land.
Mobile, Manufactured, or Modular?
Mobile homes are residences that were constructed in a factory and placed on wheels before June 15, 1976. It’s possible that these are extremely fine homes, but they were built before certain safety standards were mandated by the government. The vast majority of lenders, though not all of them, are hesitant to make loans on homes like these.
Homes that were produced in a factory and placed on the market after June 15, 1976 are referred to as manufactured homes. They are required to comply with the safety requirements established by the United States Department of Housing and Urban Development (HUD), as well as the National Manufactured Housing Construction and Safety requirements Act of 1974, which they are subject to.1 It is common practice to refer to these regulations as the “HUD Code.” After installation, mobile or manufactured homes can be moved, however doing so may make it more difficult to obtain financing for the home. Manufactured homes are constructed on permanent metal chassis.
The HUD Code does not apply to modular homes because these houses are constructed in factories and then assembled on the property where they will be lived in. Modular homes are required to fulfill all of the same local building requirements as site-built homes.2 In most cases, they are set in place on a foundation made of concrete in a permanent manner. Modular homes, much like site-built homes, have a greater propensity to maintain its value and appreciate over time compared to manufactured or mobile homes; hence, it is simpler to obtain loans for the purchase of modular homes.
In all likelihood, what you refer to as a “mobile home” is actually a “manufactured home,” despite the fact that the home is, or at one time was, mobile. Either name can be used, although the majority of financial institutions will not make loans on properties that are defined as mobile homes.
Term Loans on Chattel
You are simply financing the house itself, not the land that it is situated on, just as you would with a loan for personal property.
According to one study, the total loan amounts and administrative expenses associated with chattel loans were 40–50% cheaper than those associated with regular mortgage loans.
The annual percentage rate (APR) on a chattel loan is typically roughly 1.5% more than the APR on a mortgage loan.
The terms of repayment are often extended for a longer period of time than they are for chattel loans, which can be up to 30 years.
The terms of government loans for the down payment are more attractive.
The process of shutting can take a very significant amount of time.
Term Loans on Chattel
Mobile and manufactured homes that are moving into a park or manufactured home neighborhood sometimes use chattel loans as their financing option. They are loans for homes only, as opposed to loans for dwellings and land together.3
These are not real estate loans; rather, they are considered to be loans on personal property. They are also accessible if you already own the land and simply need a loan for the house itself instead of buying it outright.
Because this kind of loan does not include the purchase of real estate, you are able to keep the total amount of your loan lower. Costs associated with the processing of loans ought to be lower than those associated with the closure of real estate loans. In most cases, the closing procedure is completed more quickly and with fewer steps than those of a conventional mortgage loan.
There are a few drawbacks associated with obtaining a loan of this nature. Even if you are taking out a smaller loan, because the interest rates are higher, your monthly payment, when adding the interest fees, would probably be the same as, if not more than, what it would be with a regular mortgage loan. There is also the possibility of significantly shorter repayment periods, with terms as short as 15 or 20 years (although certain lenders do accept longer ones).4 A shorter term will result in larger monthly payments; but, you will pay off the loan more quickly as a result of the shorter period.
When compared to mortgage loans, the loan amounts and processing fees associated with chattel loans were found to be 40% to 50% cheaper. However, the annual percentage rate (APR) associated with chattel loans was found to be 1.5% higher. These findings were discovered by the Consumer Financial Protection Bureau (CFPB).5
Chattel loans are frequently made available by specialized lenders as well as manufactured house vendors.
Loan Programs Offered by the Government
Several government-backed lending schemes might make it easier and more economical to obtain money for a manufactured home.6 If you fulfill the requirements to qualify for these programs, you may be able to obtain a loan from a mortgage lender who has a repayment guarantee from the United States government. This means that if you are unable to repay the loan, the government will make the payments to the lender on your behalf.
Your best alternatives for borrowing money are most likely to come from government-backed lending programs; however, not all mobile and manufactured houses will be eligible for these programs.
There are Two Varieties of FHA Loans
The Federal Housing Administration is the agency that provides insurance for loans backed by the FHA. They are particularly well-liked due to the fact that they have cheap initial payments, stable interest rates, and regulations that are convenient for borrowers.
To qualify for an FHA loan, one must satisfy the following requirements: It is necessary that the house was constructed after June 15, 1976. It is necessary for it to be in accordance with the HUD Code as well as other local laws. Any changes made to the house could cause it to no longer comply with the standards. The red Certification Label, also known as the HUD Label, needs to be affixed to each individual portion of the house.
The Federal Housing Administration (FHA) offers two different programs to owners of prefabricated houses.
FHA Loans Under Title II
One such option is the well-known 203(b) loan, which can also be utilized for site-built homes. They permit purchasers to make down payments as little as 3.5% of the purchase price.78 On the other hand, you will be required to pay an upfront mortgage insurance cost in addition to continuing to pay mortgage insurance along with each monthly payment. To be eligible for an FHA loan, you will need to have credit ratings that are above average, but they do not have to be flawless. You have the option of using money that was gifted to you to support your down payment and closing fees, and you also have the option of asking the seller to assist you with those costs.
Because Title II loans are considered to be real estate loans, you will be required to purchase both the land and the home at the same time. Additionally, the home must be permanently constructed on a foundation system that has been approved. There is no upper limit on how long loan durations can be.
Loans under Title I of the FHA
You can acquire one of these for your personal property, which is convenient in the event that you won’t own the ground on which your house is situated.9 However, if you intend to list the home on a rental site, the lease agreement that you use must comply with the requirements established by the FHA. The minimum amount of a down payment that a lender will accept can be as little as 5%; however, this requirement might differ from one lender to another and is based on your credit score.108
In addition, in order to qualify for a Title I loan, the property in question needs to serve as the borrower’s primary residence, and the installation site needs to have both water and sewer service. Both the site where the brand-new manufactured home is placed and the home itself are required to be inspected by an appraiser who is approved by HUD.11 It is also possible to use Title I loans to purchase both a land and a house together. The maximum sums that can be borrowed are less than the maximums for Title II loans, and the duration of the loans are shorter. The longest possible period for making payments on a single-wide home and lot is twenty years.
Loans offered by the Department of Veterans Affairs (VA)
Veterans and service members are eligible to apply for VA loans, and these loans can be used to purchase manufactured homes as well as modular homes.12 They are particularly enticing due to the fact that you are able to buy a home with no money down and without having to pay mortgage insurance on a monthly basis, provided that the lender is on board with the transaction and that you fulfill the minimum credit score and income standards. If you choose not to make a deposit, however, your monthly payments will be higher, and the total amount of interest you will pay over the life of the loan will be greater. The following are some of the requirements for obtaining a VA loan to purchase a manufactured home:
It is required that the house be permanently fastened to the foundation.
You are required to purchase the house along with the land that it sits on, and you have to have the house titled as real property.
This can’t be a vacation home or a rental property; it has to be your main place of abode instead.
It is required that the home adhere to the HUD Code and that HUD Labels be attached.
Where to Get a Loan
When looking for a loan of any kind, it is in your best interest to compare offers from multiple lenders. Make sure you compare everything from interest rates and features to upfront and other charges. When it comes to mobile home loans, the kind of loan you get and the lender you go through might be extremely crucial factors. When looking for a loan, you have a few choices available to you.
Retailers
Financing options for customers looking to buy manufactured houses are normally arranged by the companies that construct those homes for sale.13 When you are purchasing a new house, the relationships that you have with your builder may in some instances be the only alternatives that you have for funding. Make sure you ask your builder for a list of many different lenders who are not linked with their company.
Because specialized lenders are better knowledgeable about the processes involved in purchasing prefabricated homes, they are more inclined to accept loan applications for these types of properties.
If you will not be permanently anchoring the home to a foundation system or if you do not own the property on which the home will be situated, you will most likely be required to engage with a lender who specializes in the market for prefabricated homes. If you are purchasing a home that isn’t brand new or one that has had modifications done, or if you want to refinance an existing loan on a manufactured home, this kind of lender would be the greatest option for you in all of these situations.
Standard Mortgage Lenders
Borrowing money from a conventional mortgage lender will be simpler for you to do in the event that you are purchasing a house along with the land that it is situated on, and that the house is permanently fixed on a foundation system. These loans can be accommodated by a variety of local financial institutions, including banks, credit unions, and mortgage brokers.
Note
Request referrals for reputable lending institutions from people you already know and trust. If you’re unsure of who to ask, you may start with your real estate agent, or you could seek out to employees and residents at mobile home parks, as well as people you know who have taken out loans to purchase manufactured homes.
Different Lenders, Different Rules
Although the United States government guarantees a portion of the loans that have been discussed above, lenders are nevertheless permitted to impose regulations that are stricter than those established by the government. These so-called “overlays” might make it impossible for you to get a loan, although other financial institutions might have different regulations. You need to locate a lender that has fees that are comparable to other lenders, and you need to find a lender who is willing to work with your specific requirements, so it can be beneficial to shop around.
The purchase of a home is likely to be the single largest investment that a person makes in their lifetime; nevertheless, prefabricated homes are often more affordable than site-built homes. They have the potential to make homeownership more accessible, particularly for consumers with lower incomes and for those who reside in remote locations, where contractors and building materials may be difficult to come by.
Frequently Requested Information (also known as “FAQs”)
What kind of interest rate is applied to loans for mobile homes?
The annual percentage rate (APR) for a normal chattel loan, which is a type of loan that is frequently used for mobile homes and prefabricated houses, is typically 1.5% more than the rate for a traditional mortgage. If you decide to go with a loan through the FHA or the VA, you might be able to acquire a better interest rate.
How long is the maximum term for a loan on a mobile home?
The average periods for chattel loans are 15 or 20 years, however longer terms are available through the government for certain types of loans. For example, the FHA Title II loan can have a term of up to 30 years, but it is more comparable to a typical real estate loan because it also includes the land in addition to the mobile home. The availability of loans of this kind for mobile and manufactured homes is far lower than it is for conventionally built homes.
