Dreaming of homeownership but without the high costs involved with purchasing and maintaining a traditional, “stick-built” residence? Consider a manufactured home or a mobile home, which can cost less and promise easier upkeep.
Be aware, however, that manufactured home financing can be a bit more complicated than borrowing money for a traditional single-family home or attached residence.
Learn more about what’s involved with getting a loan for manufactured homes versus a loan for mobile homes, the financing options available, and how to qualify.
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Mobile Home Loans vs Manufactured Home Loans
Before delving into the financing options, it’s important to understand the differences between mobile homes and manufactured homes. While people often use these terms interchangeably, there are distinctions.
Dwellings labeled as “mobile homes” were built before June 15, 1976, and constructed under older standards that had less strict safety and construction guidelines. Manufactured homes, on the other hand, are constructed in compliance with regulations introduced in 1976 by the U.S. Department of Housing and Urban Development, or HUD.
This new HUD code set nationwide standards for the construction of manufactured homes, governing areas like strength, durability, design, energy efficiency, transportability, fire resistance and overall quality. It also established performance criteria for key systems, including electrical, plumbing, heating and air conditioning.
The June 15, 1976 date “is important because it determines whether the home follows the older, less stringent standards or the newer, stricter ones. This can impact things like financing options and how much the home is worth,” says Matt Vukovich, a real estate investor in Mishawaka, Indiana, who has experience buying and selling manufactured homes.
Mobile homes and manufactured homes share several key characteristics, however. Both are built in a factory and transported to the installation site. Both are typically constructed on a steel chassis rather than on a traditional foundation with a crawlspace or basement. And both often use tie-down systems instead of being anchored to a permanent foundation.
Be aware that manufactured homes are not automatically classified as “real estate.” To be considered real estate, they must be permanently attached to land. Homes not permanently attached are designated as “chattel,” which means personal property.
If the chattel home is permanently affixed to land and properly titled, it may be converted to real property and be classified as real estate. This status is important when you’re seeking to finance a mobile or manufactured home. In general, mobile homes and manufactured homes not titled as real estate can be financed only with personal loans and chattel loans or with a dealer-provided installment financing plan (more on these options later).
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How to Finance a Manufactured Home
Eager to get a loan for a manufactured home? First, there are some crucial things to understand when it comes to titling that home.
Remember that manufactured homes are built as complete homes in a factory and are, at least initially, titled as personal property, independent of the land the home will eventually be installed on.
A manufactured home buyer “may either surrender the personal property title, and permanently affix the home to the real property title, or they may keep the land and home titles separate,” notes Ben Halliday, co-founder and CEO of Dallas-based Zippy, a provider of manufactured home loans. However, “to obtain a real property mortgage, the home must be titled to the real property — the land — which involves a process of installing the home in a certain way, surrendering the personal property title, and obtaining a new real property title inclusive of the home description.”
To be converted to real property, the manufactured home must be on a permanent foundation, with wheels and axles removed. Additionally, most lenders will not offer financing on a manufactured home that has been moved more than once.
“Lenders avoid financing manufactured homes that have been relocated more than once due to concerns over structural integrity,” says Yosef Adde, a real estate agent in Hermosa Beach, California, who has dealt extensively with manufactured and mobile homes.
If your manufactured home is titled as real property, you can pursue the following financing options:
Conventional Loans
These are conventional mortgage loans that aren’t backed by a government agency — the same kinds of loans many borrowers get for single-family residences.
“Conventional loans offer favorable rates, but you may have more difficulty obtaining credit and meeting down payment requirements,” says Wade Peery, chief innovations officer for FirstBank in Nashville Tennessee, which offers manufactured housing financing.
Most conventional manufactured housing loans require a credit score of 620 or higher, with better scores qualifying for lower interest rates. You’ll also have to pay mortgage insurance until you reach 20% equity.
FHA Loans
Backed by the Federal Housing Administration, or FHA, these loans are often more flexible than conventional loans. There are two main types of FHA loans for manufactured housing:
Title I loans. These are personal/chattel loans for homes that are not considered real property.
Under the FHA Title I program, the maximum loan amounts vary depending on the type of financing: $23,226 for a manufactured home lot, $69,678 for a home only, and $92,904 for a combination loan covering both the home and lot. The loan terms also differ, with a maximum of 15 years for a lot-only loan, 20 years for a single-wide home and lot, and up to 25 years for multi-section homes paired with a lot.
Title II loans. These are mortgage loans for homes that are on land you own and have been converted to real property. The minimum down payment for these loans is 3.5% for borrowers with a credit score of 580 or higher. For those with credit scores between 500 and 579, the minimum down payment is 10%.
It’s also possible to qualify for a loan without a credit score, though lenders will carefully evaluate your payment history, including rent and utility payments. Additionally, your debt-to-income ratio must be 50% or lower to qualify.
VA Loans
If you are an eligible military veteran, active duty military member or surviving spouse, you may qualify for a VA loan to finance your manufactured home. But, unlike a traditional VA loan that does not require a down payment, this loan will require 5% down.
“There is also a VA funding fee you will have to pay, plus there can be tighter credit score and debt-to-income requirements for loan eligibility,” says Seamus Nally, CEO of TurboTenant in Fort Collins, Colorado.
USDA Loans
USDA loans are only available for designated rural areas but may require no down payment for your manufactured home. You must have a household income that does not exceed 115% of the median household income of the area in which the eligible house is located. While the USDA has no minimum credit score, lenders often do. Check upfront if this is a concern.
How to Finance a Mobile Home
If you need to borrow money for a mobile home, your choices are more limited. Because mobile homes are usually not titled as real estate, you can’t pursue a conventional, FHA, VA or USDA mortgage loan. Instead, consider these options:
Personal Loan
You could take out a secured loan, which requires collateral but which may yield a lower interest rate. Or you could opt for an unsecured personal loan, which requires no collateral and can be faster — your eligibility is determined by only credit score and history. Approval and disbursement of funds is relatively quick with a personal loan compared to other loan types.
To qualify for an unsecured personal loan, borrowers generally need a credit score of 670 or higher, a debt-to-income ratio under 36% and proof of steady earnings. Many lenders charge an origination fee, typically ranging from 1% to 5% of the loan amount.
Chattel loan
Your second option is a chattel loan. To qualify, you may need a FICO credit score of at least 575 and a solid credit history. Loan minimums generally start at $16,000, though this may vary based on the location of the home purchase.
Chattel home loans often have higher interest rates than traditional mortgages because they’re riskier for lenders. This loan may also require as little as 5% down, but most borrowers need to put down 10% and have a 640 or higher credit score and debt-to-income ratio of 43% or less. Chattel loans often have shorter terms of up to 20 years.
Installment financing
Another option is to get installment financing offered by a mobile home dealer or manufacturer. However, these programs may come with higher costs and less favorable terms.
“These offers vary widely by dealer and are not as common in recent times. Today, dealers more often partner with specialty lenders that have licensing and expertise to offer competitive financing options,” Halliday says.
Finding Loans for Mobile Homes
Locating lenders who specialize in financing mobile and manufactured homes can be challenging. Many banks and other lenders don’t provide loans for these types of dwellings, especially if they aren’t titled as real estate.
“A quick search for home loans will often leave the buyer of a manufactured home confused and frustrated by the responses of lenders that do not understand or commonly offer manufactured home loans,” says Peery. “Consumers are best served to reach out to a lender that specializes in manufactured home lending to explore the various options available to them.”
Still having trouble finding a lender? “Work with real estate agents who specialize in manufactured and mobile homes to help navigate the complexities,” says Vukovich.
Some good news, on a final note: HUD recently launched a new Manufactured Home Community loan product to assist with the purchase, refinancing, and enhancement of manufactured home communities.
This FHA-insured financing is designed to support affordable housing by enabling certain organizations to acquire or improve these communities, update shared spaces and maintain affordable rents. HUD anticipates that this program will benefit over 5,000 individuals in the next five years.
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Can You Get a Loan for a Mobile Home? originally appeared on usnews.com
Update 09/25/24: This story was previously published at an earlier date and has been updated with new information.
