Mobile homes can provide the stability and comfort of a traditional home but at a much lower price. The catch? If you need mobile home financing, it can be more difficult than taking out a regular mortgage loan. Here’s what you need to know if you want a mobile home loan.
What Are the Mobile Home Loan Requirements?
Mobile homes are assembled at a factory and then wheeled to their permanent destination — they’re also called “manufactured homes.” Mobile and manufactured home loans are essentially the same thing; “mobile homes” were factory-built before June 15, 1976, and “manufactured homes” are mobile homes built after this date.
Manufactured homes are subject to construction and safety standards put in place by the U.S. Department of Housing and Urban Development. HUD’s Manufactured Home Construction and Safety Standards regulate thermal protection, plumbing, electrical, fire safety and more.
So, how difficult is it to get mobile loans?
“Financing a mobile home is more difficult than financing a conventional home, but getting a loan for a mobile home is still feasible,” says Daniela Andreevska, marketing director at Mashvisor, a real estate data analytics company.
The type of loan you ultimately borrow will depend on a few key factors.
[Read: Best Mortgage Lenders.]
“When approaching the purchase of a mobile home, you first need to determine whether it’s on a permanent foundation,” says Matthew Yu, vice president of loans and investments at real estate lending and investment firm Socotra Capital. You’ll have more options, including conventional and federally backed mortgage loans, if the home is on a permanent foundation.
Mobile homes that meet certain requirements can qualify for a traditional home loan. In addition to sitting on a foundation, the home needs to have its wheels removed so that it’s stationary, and you should also own the land under it. In most cases, it must be at least 400 square feet in size — sometimes more. If these requirements are met, it qualifies as “real property” and can be financed with a mortgage.
“For manufactured homes financed as real property, the terms are pretty much the same as those for traditional ‘stick-built’ houses,” says Gina Pogol, a licensed mortgage originator and editor-in-chief for mortgage company Gustan Cho Associates. For example, you can choose a 15-year or 30-year fixed-rate loan. Mortgage rates are about the same, too, although they may be slightly higher because there is less competition for that business, Pogol says.
On the other hand, if the home does not meet the requirements for a mortgage and is movable, you will need to apply for a chattel loan, a type of personal property loan, not a real estate loan, Andreevska says.
Types of Mobile Home Loans
If your manufactured home qualifies as real property, there are a number of mobile and manufactured home loan programs you can consider.
Conventional Mortgage Programs
— Fannie Mae. You can get a manufactured home loan under the Fannie Mae MH Advantage program, as long as the title includes both the home and the land it’s on. It must also qualify as real property. Thirty-year fixed-rate mortgages are available, as well as 7/1 and 10/1 adjustable-rate loans. The down payment can be as low as 3%. Some homes are ineligible, including investment properties and single-wide homes.
— Freddie Mac. To qualify for a manufactured home loan through Freddie Mac’s program, the home must be considered real property. Fixed-rate mortgages are available, as well as 7/1 and 10/1 ARMs. Both primary residences and second homes qualify, but investment properties don’t. You can put down as little as 5%.
Agency-Backed Mortgage Programs
— Federal Housing Administration. FHA Title I and Title II loans are available for manufactured homes. These loans come with terms of up to 25 years (Title I) or 30 years (Title II) and allow for down payments as low as 3.5%.
— U.S. Department of Veterans Affairs. Some VA lenders allow mobile home financing. VA loans can be used to purchase or refinance a mobile home, plus the lot if you wish; to purchase and improve a lot for your existing mobile home; to refinance a mobile home in order to buy a lot; or to refinance an existing VA mobile home loan. The home must be considered real property with a permanent foundation. It’s possible to finance with no money down and no mortgage insurance, as long as you meet the lender’s credit and income requirements. Loan terms range from 15 to 30 years, depending on the type.
— U.S. Department of Agriculture. If your mobile home meets USDA guidelines, you may be able to find a lender that will finance its purchase. To qualify, your home must be considered real property, and its site must be designated as rural by the department. It must also be less than a year old. In many cases, you can finance with no down payment.
[Read: Best Mortgage Refinance Lenders.]
Chattel Mortgage Loan
Another financing option is a chattel loan, which actually is not a type of mortgage but a personal property loan. Chattel loans are designed specifically for movable property, which is what the term “chattel” means. “Chattel loans are usually used when the mobile home will be located in a park or a manufactured home community, and they are home-only loans, excluding the land,” Andreevska says. Because these loans do not include real estate, the closing process is typically faster and less demanding, and the loan processing costs are lower than with a conventional mortgage loan.
However, the amount you can borrow is usually much smaller than with a traditional mortgage. Repayment periods are also usually limited to 15 to 20 years. “Moreover, the interest rate is higher because of the shorter loan period,” Andreevska says. “This means that overall, the monthly payment amounts often actually exceed the payments on a conventional home.”
If you are only buying the manufactured home and not the land underneath it, another option is to take out a personal loan. Personal loans can be secured or unsecured, meaning they’re backed by collateral (like a manufactured home) or not. Personal loans tend to have higher interest rates and a much lower loan cap than a traditional home loan. Because manufactured homes are less expensive than site-built homes, a personal loan could still provide enough money to cover your home purchase.
Instead of borrowing money from a bank, you can go directly to the source. For instance, you could finance directly with the dealership selling your mobile home. This is known as a retail installment contract, which is a common form of mobile home financing. Though the loan is made by the retailer, it can eventually sell the loan to a third party.
If you’re buying a mobile home from a private owner, it’s also possible to work out a financing deal with them. In this case, you’ll want to be sure that the home’s title is clear, meaning there are no liens or judgments against it, and that the seller owns it outright. You’ll also need to put a promissory note and bill of sale in writing and have both parties sign.
How to Get a Loan for Your Mobile Home
The steps to securing mobile home financing will vary quite a bit depending on your particular property. However, there are some guidelines you can follow to get a loan for your mobile home.
Determine what type of loan you need. The first step is figuring out what type of loan you need to apply for, whether it’s a real property loan, chattel loan or personal loan. For example, what is the age and condition of your home? Are you buying land as well, or just the stand-alone manufactured home? Is it fixed to a foundation, or are the wheels intact? All of these factors will impact what type of mobile home loan you can qualify for.
Check your credit. In most cases, you will need to meet certain credit requirements in order to qualify for mobile home financing. Before you get too far into the loan application process, you should check your credit reports and scores to see what shape your credit is in. You can get free copies of your credit reports from the three major credit bureaus at annualcreditreport.com. You may also be able to see your credit scores for free through your bank or credit card’s online banking platform.
The minimum credit scores required for different mobile home loans vary according to lenders’ specific requirements. For example, conventional mortgage lenders usually require a score of 620 or higher. Credit scores for FHA loans can go as low as 500 if you can pay a 10% down payment. VA loans typically require a minimum 580 credit score. USDA mortgage lenders usually require a 640 minimum credit score. Personal loan credit scores can be as low as 580. Some chattel lenders don’t even require a minimum credit score.
Keep in mind that even if you can qualify for a loan with a lower score, you’ll be able to secure the lowest interest rates and best loan terms the higher your score is.
Budget for your new costs. Financing a mobile home means you will have new expenses to fit into your monthly budget. For example, you may need to save up for a down payment first. Of course, the more money you put down upfront, the lower your loan and monthly payments will be. Personal loans, on the other hand, don’t require any down payment at all.
You’ll also need to budget for your monthly payments, which may last 15 years or longer. Your payment amount will depend on factors like the size of your loan, the term length and the interest rate, which can vary widely depending on the loan type. Government-backed loans tend to have the lowest rates, while personal loans can easily fall into the double digits. Again, the better your score, the lower the rates you can qualify for.
Compare multiple offers. Mobile home loans may be tougher to find than traditional home loans, but it’s still important to get quotes from several lenders before making a decision. You’ll want to find a lender who can offer the lowest rate and closing costs for the term length you want. You can start by visiting community banks in your neighborhood or searching online.
Submit your application. Once you’re ready to officially apply, you’ll want to have all of your paperwork gathered ahead of time to streamline the process. Again, the exact documentation you need will depend on the type of loan you choose, but there are a few documents you can expect your lender to ask for:
— Proof that you own the mobile home, such as a sales contract.
— Proof of income, such as recent pay stubs and W-2s from the last two years.
— If you owe alimony or child support, you may need to show the divorce decree or court order that states the amount, plus proof of receipt of funds.
— Source of funds if you’re required to make a down payment.
— Proof of homeowners insurance (only if your mobile home is considered real property).
— List of debts and liabilities, including credit cards, student loans and car loans.
Challenges to Watch Out for When You Buy a Mobile Home
Though there are several options for financing a manufactured home, it’s not always easy to qualify. Pogol says that just because a program guideline says lenders can approve an application doesn’t mean they have to approve it.
“And while it might seem odd that a lender would turn down a government-backed loan that protects the lender from losses, there is more to it than that,” she says. For example, lenders who end up with higher default rates than the average for their area can lose their permission to fund those loans, so they tend to be cautious. “These stricter guidelines than required are called ‘overlays,’ and they are fairly common,” Pogol says.
[Read: Best FHA Loans.]
Another potential obstacle is the home condition. Pre-1976 mobile homes usually can’t be financed with traditional mortgages since they were manufactured before HUD-enforced guidelines. Plus, because manufactured homes tend to depreciate, or at least usually don’t appreciate at the same pace as traditional houses, lenders may be pickier about the applications they will accept, Pogol says.
If you are attempting to finance an older mobile home or you present a bigger risk from a credit or income standpoint, Pogol recommends placing a larger down payment to increase your odds of getting approved.
“If you don’t have a large down payment, perfect credit and a low debt-to-income ratio, you will probably have to look harder for mobile home financing,” Pogol says. “Companies that specialize in these loans often charge much higher rates and want larger down payments. I recommend that buyers always try first for a mortgage and only resort to more expensive options if necessary — and if they can afford it.”
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