How to Get a Loan for a Mobile Home

FT Contributor  | 

While there are some similarities between mortgages for standard site-built homes and loans for mobile, manufactured, and modular homes, there are also some important differences.

For mobile home loans, lenders assess variables such as the borrower’s credit history, the age and condition of the mobile home, the location, and whether they are purchasing a new dwelling from a manufacturer or getting an older home from another owner.

In some cases, you need a loan that is specifically for a manufactured home. In other instances, mobile and manufactured homes qualify for the same kind of financing as site-built homes. To be eligible for a standard real estate mortgage, a borrower has to purchase a mobile home that is more than 400 square feet. The house has to sit on an approved foundation, and local authorities have to tax it as real estate.

If a mobile home is on wheels, not on an approved foundation, or registered with the DMV, it is personal property, not real estate. Since it is not real estate, borrowers cannot qualify for a standard real estate mortgage. You can, however, get a different type of loan to purchase a non-real estate mobile home.

An Overview of the Options for Manufactured Home Buyers

You can purchase a non-real estate dwelling by using an FHA-backed loan. These government-insured loans often have more agreeable terms than other loans, so first-time buyers find them more manageable. An FHA Title I loan is for a mobile home that sits on property that you do not own. An FHA Title II loan is for homes that qualify as real estate and will rest on a foundation on land that you also plan to purchase.

You can finance qualifying manufactured and modular homes through government-backed lenders such as Fannie Mae and Freddie Mac. The US Department of Agriculture and the Veterans Administration also offer mobile home loans for those living in rural areas and former military personnel, respectively.

Mobile home dealers, banks, mortgage providers, and other financial institutions offer different choices to home buyers. To find the best of these options, you need to understand the various aspects of mobile or manufactured homes and how these affect financing.

Mobile, Manufactured, or Modular, Does It Make a Difference?

Cost is one of the main reasons that buyers opt for mobile, manufactured, or modular homes instead of traditional site-built houses. Prices vary depending on the location, but an average site-built, single-family house costs about $150 to $250 for each square foot. Comparable manufactured or modular homes can cost as little as one-half to one-third of that amount, though luxury manufactured homes can cost as much as their site-built peers. The cost of land is similar for both mobile homes and traditional houses. Therefore, overall, a standard manufactured or modular home can be significantly cheaper than a built-onsite dwelling.

Mobile, manufactured, and modular homes are categorized together because the manufacturer builds them offsite and transports finished homes or sections to the building site for assembly. While some people use the terms “mobile” and “manufactured” interchangeably, there are some critical differences. Understanding the distinctive attributes of each can be vital as you seek a loan or mortgage for your home.

Mobile Home

Technically, mobile homes are prefabricated homes built before 1976. Before this time, the government had few regulations for such dwellings. After the Mobile Home Construction and Safety Act of 1976, mobile homes became known as manufactured homes. Most lenders will not offer loans to people who want to purchase pre-1976 mobile homes.

You can get a loan for a mobile home vehicle, which is on wheels or transportable but not on an approved foundation. These vehicles do not qualify as real estate, so you need a personal loan or an FHA Title I loan to purchase them. You obtain this loan from a private lender, and FHA then provides insurance for the loan. The maximum amount you can borrow is $92,904 for a home and lot, or $69,678 for just the house, which you can then place on a leased lot.

Manufactured Home

Like mobile homes, manufactured homes are built in factories, shipped to the building site, and installed on a foundation. Manufactured homes need to meet all the safety and quality standards mandated by the 1976 Mobile Home Construction Safety Act. Though mobile homes are dwellings from before 1976, many people still use the term “mobile home” to refer to manufactured homes. You will also hear people refer to these structures as “prefabricated” or “prefab” homes.

If a manufactured home is more than 400 square feet, placed on a permanent foundation, and taxed as real estate, you can apply for a mortgage through government-back lenders like Fannie Mae and Freddie Mac. Rates on these mortgages tend to be slightly higher because, in most markets, manufactured homes do not hold their value as well as site-built homes.

Modular Home

Like manufactured homes, modular homes come from factories. Rather than assembling a complete dwelling, however, modular home producers build modules that customers can use to create customized homes. Contractors join two or more modules together on a foundation to create a complete home.

In some markets, modular homes hold their value better than manufactured homes. As long as you own the land where your house gets assembled, your modular home qualifies as real estate, and you can purchase it using a standard home mortgage.  

What Is the Best Way to Finance a Manufactured Home?

There is no single best option for financing a manufactured or modular home. You need to weigh your credit history and eligibility, the down payment amount, and the size of the house. The type of home, the ownership status of the land where it sits, and foundation also affect the kind of loan that you need.

Conventional Mortgage

Conventional mortgages are for manufactured or modular homes that meet all quality requirements and that the manufacturer assembles on land you own. Lenders treat these homes as real estate and offer conventional mortgages to loan applicants. Some lenders offer higher interest rates for prefabricated home mortgages because they assume that the value of factory-built homes does not increase as much as site-built homes.

FHA

FHA loans are from private lenders, but FHA insures the loans. Because of this extra layer of protection for lenders, they are more likely to approve applications for first-time home buyers and those with average credit scores. FHA loans are available for both real estate and non-real estate mobile homes. There are two types of FHA loans for manufactured and mobile homes:

  • FHA Title I. These loans are for mobile homes that you will place on land you do not currently own. Title I loans are for dwellings that do not meet the legal definition of real estate. Terms range from 15 to 25 years, and the maximum amount you can borrow is $69,678 for a home, $23,226 for a lot, and $92,904 for both a home and a lot.
  • FHA Title II. These loans are for homes that qualify as “real estate.” You need to make a down payment of at least 3.5%. If your credit score is below 580, but above 500, you need to make a 10% down payment.

Chattel Loans

Chattel loans are loans that use a manufactured or mobile home as collateral. You obtain this type of loan when you want to purchase a home, but you lease the land on which you will place it. You can also use a chattel loan if you already own the property and have paid for it in full, and you only need financing for the dwelling. Though interest rates are slightly higher than standard real estate loans, chattel loans have much lower closing costs and limited processing fees.

VA Loans

Veterans Administration loans are for former military members. These loans are for manufactured homes on a permanent foundation. A VA loan must be for a primary residence, so you cannot use it to purchase a cabin or an investment property.

Fannie Mae

Fannie Mae loans are for homes that are 600 square feet or more. This government-backed lender provides real estate loans, so you need to purchase the land and foundation for your manufactured home as well as the house itself. You need to be able to make a 3% down payment to qualify for a Fannie Mae loan.

Freddie Mac

Like Fannie Mae loans, Freddie Mac mortgages are for manufactured homes that qualify as real estate and sit on a foundation at a fixed location. You need to make a 5% down payment to be eligible for a Freddie Mac loan.

Where to Get Loans for Manufactured Homes

You can get manufactured loans through a variety of different sources. Typically, you have more options when purchasing a manufactured home along with land, but you can also find lenders willing to provide loans for non-real estate mobile homes.

Financing Through the Dealer/Retailer

Mobile, modular, and manufactured home dealers are one of the most popular sources for loans. It is convenient to purchase a home and get financing from the same source, but these loans often have higher-than-average interest rates.

You can seek out additional loan providers and compare the terms to those offered by the dealer. The Preserving Access to Manufactured Housing Act was considered by the U.S. Congress in 2017. If reconsidered in the future and passed, it will provide additional protections to borrowers obtaining financing for prefabricated homes. For now, however, buyers need to research the offers from both dealer-associated lenders and outside lenders to ensure that they get the best terms.

Specialized Lenders

Some lenders specialize in offering loans for manufactured and modular housing. The advantage of working with these lenders is that they will understand the variables related to purchasing a manufactured home and will be able to find a loan product that fits your exact needs. If you buy a home, but not the land, or if you purchase an existing manufactured home, a specialized lender could be your best option.

Standard Mortgage Lenders

You can get a standard mortgage if you purchase both the home and the land on which it will sit. Your home also needs to meet size and foundation requirements. These loans are available through banks, credit unions, brokers, and other mortgage providers. The application process is similar to the process for a site-built home.

The kind of loan that you need in order to purchase a mobile, manufactured, or modular home depends on the dwelling’s size, type, location, and other factors. Once you understand these variables, you can find a loan that fits your financing needs.


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