Loans for Manufactured and Mobile Homes: A Standard Home Loan or a Chattel Mortgage?

Loans for Manufactured and Mobile Homes: A Standard Home Loan or a Chattel Mortgage?

Your choices may be contingent on a variety of things

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 aren’t as common as regular home loans, but you can get them from a number of places, and government-backed lending programs can make it easier to get 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 available to you.

Key Takeaways

  • 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 FHATitle I and Title II loans can be used for manufactured homes built after June 15, 1976, as long as they meet all local and federal building codes.
  • 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 expected to comply with the safety standards established by the United States Department of Housing and Urban Development, and they are governed by the National Manufactured Housing Construction and Safety Standards Act of 1974, which was passed in 1974 (HUD). The term “HUD Code” is frequently used to refer to these regulations. It is possible to move a manufactured home once it has been installed, but 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 have to meet all of the same building rules as homes that are built on-site.

In most cases, they are set in place on a foundation made of concrete in a permanent manner. As a result, obtaining loans for the purchase of modular homes is easier.

Even though the home is, or at one time was, movable, you probably refer to it as a “fabricated home,” even though you call it a “mobile home.” Either name can be used. However, the majority of lenders will not provide financing for properties that are considered to be mobile homes.

Term Loans on Chattels

  • 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.
  • One piece of research says that the total loan amounts and processing costs for chattel loans are between 40 and 50 percent less than those for regular mortgage loans.
  • The annual percentage rate (APR) on a chattel loan is typically about 1.5 percentage points more than the APR on a mortgage loan.
  • Traditional Home Loans
  • When compared to chattel loans, the periods of repayment are often far more generous, reaching up to 30 years.
  • The terms of government loans for the down payment are more attractive.
  • The process of shutting down can take a very significant amount of time.

Term Loans on Chattels

Mobile and manufactured homes that are moving into a park or manufactured home neighborhood sometimes use chattel loans as their financing option. These are loans solely for the purchase of a home, as opposed to loans covering both the home and the land. 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 the 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. Most of the time, the closing process for a non-conventional mortgage loan takes less time and has fewer steps.

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 durations, with maturities as short as 15 or 20 years (although some lenders do offer loans with lengthier terms). 4, A shorter term will result in greater monthly payments. Nevertheless, you will pay off the debt faster because of the shorter duration.

According to research done by the Consumer Financial Protection Bureau (CFPB), the annual percentage rate (APR) for chattel loans is 1.5 percentage points higher than that for mortgage loans, even though the loan amounts and processing fees for chattel loans are 40–50% lower than those for mortgage loans. Chattel loans are frequently made available by specialized lenders as well as manufactured home vendors.

Loan Programs Offered by the Government

A number of different financing schemes that are sponsored by the government might make it easier and more reasonable to borrow money for a manufactured house.

If you meet 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 homes 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 meet a number of requirements, including the following: It is necessary that the house be 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. Each part of the house needs to have the red Certification Label, also called the HUD Label, stuck on it.

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. Prospective buyers can put down as little as 3.5 percent. 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 can use money that was given to you for your down payment and closing costs, or you can ask the seller for help 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 installed on a foundation system that has been pre-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 don’t own the ground on which your house is situated.

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 require can be as little as five percent, but this requirement might differ from one lender to the next and is based on your credit score. 

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. It is also possible to use Title I loans to purchase both land and a house together. The maximum sums that can be borrowed are less than the maximum for Title II loans, and the duration of the loans is shorter. The longest possible period for making payments on a single-wide home and a lot is twenty years.

Loans offered by the Department of Veterans Affairs (VA)

Veterans and people who have served in the military can get VA loans, which can be used to buy both manufactured and modular homes.

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 must be met in order to qualify for a loan from the VA on 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.
  • The home has to follow the HUD Code, and HUD Labels have to be put on it.

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 evaluate everything from financing 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

Customers who want to buy manufactured homes are usually able to get financing through the companies that build those homes.

When you are purchasing a new house, the relationship that you have with your builder may, in some instances, be the only alternative that you have for funding. Make sure you ask your builder for a list of many alternative lenders who are not linked with their company.

Alternative Credit Lenders

There are a number of mortgage lenders who focus on giving loans for mobile and prefabricated homes. If needed, they can also give loans for land.

Specialized lenders are more likely to accept loan applications for this type of financing because they know more about buying manufactured homes.

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, or if you want to refinance an existing loan on a manufactured home, this kind of lender would be the best 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. A good number of banks, credit unions, and mortgage brokers in the area can help with these loans.

Ask people you know and trust for their suggestions of reputable lenders. If you are unsure of whom to ask, you may start with your real estate agent, or you could seek out employees and residents at mobile home parks, as well as others 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 mentioned above, lenders are still permitted to impose criteria that are stricter than the standards established by the government. These so-called “overlays” can prevent you from getting a loan, but other financial institutions might have different regulations. You need to locate a lender that has fees that are comparable to other lenders’ fees, 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; consequently, prefabricated homes are often more affordable than site-built homes. They have the potential to lower the barriers to entry into homeownership, particularly for customers with lower incomes and for those who reside in remote locations, where it might be difficult to find contractors and building materials.

Questions That Are Typically Asked (FAQs)

What kind of interest rate is applied to loans for mobile homes?

A typical chattel loan, which is a type of loan commonly used for mobile homes and manufactured homes, has an annual percentage rate (APR) that is 1.5 percent higher than a traditional mortgage. If you decide to go with an FHA loan or a VA loan, you might be able to secure a better interest rate.

How long is the maximum term for a loan on a mobile home?

The average terms 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.

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