Everything You Need to Know About Manufactured Home LoansMay 11, 2022 by X2 Mortgage
Are you wanting to stop renting apartments?
You've probably heard of manufactured or mobile homes from friends and financial advisors, and now, due to your limited income or budget, you're considering buying a manufactured home without breaking the bank.
In this article, you'll learn everything you need to know about a manufactured home loan and how to become a manufactured homeowner.
Difference Between A Manufactured And Mobile Home?
The U.S. Census Bureau reports that there are 18 million mobile homes in the United States, accounting for 5% of the population. That's a lot of homes, and it shows how popular mobile and manufactured homes are.
The reasons for their popularity aren't far-fetched; mobile homes are inexpensive and easy to maintain than traditional family homes.
However, before you apply for a manufactured home loan, you should understand the types of manufactured homes. The terms "manufactured homes" and "mobile homes" don't always mean the same.
What is a Mobile Home?
A mobile home is a factory-based home before being delivered to a site for installation. However, it differs from a manufactured home in that it was constructed before June 15, 1976, and does not meet the HUD Act standard.
They are considered "personal property" and are not eligible for traditional mortgage programs. However, you can finance the purchase of a mobile home with a "chattel loan", "personal loan", or "hard money loan".
What Are Modular Homes?
These are popular types of mobile homes, similar to manufactured homes. They are constructed in specialized factories and are permanently attached to a foundation.
However, Modular homes are usually larger than standard manufactured homes and can come with second stories, garages, and covered patios.
They are also classified as "real property" and are therefore eligible for traditional mortgages. Similarly, they meet the HUD manufactured home standard and other local building codes.
What Is A Manufactured Home?
A "manufactured home" is a home that is built in a specialized factory and then moved to a permanent location. Once installed, a manufactured home is not intended to be moved.
In addition, the home must have been built after June 15, 1976, in accordance with the National Manufactured Housing Construction and Safety Standards Act enacted by the United States Department of Housing and Urban Development (HUD).
The act specifies the structural requirements of a manufactured home instead of what was previously termed mobile homes.
Because manufactured homes have a permanent foundation. They are classified as "real estate" or "real property" and are eligible for mortgage programs such as FHA Loans, VA Loans, and USDA Loans.
How To Qualify for Manufactured Home Loan
How do you acquire one now that you know what a manufactured home? Getting financing for a manufactured or mobile home can be a little challenging, but not as difficult as you think.
Today, many financial institutions provide funding for a manufactured home purchases. In fact, because of their unique requirements and differences from traditional mortgages, manufactured home loans are becoming increasingly popular.
Here are some of the requirements for obtaining a manufactured home loan.
A manufactured home must be classified as "real estate" to be eligible for traditional mortgages. And to be classified as "real estate," the home must be at least 400 square feet in size and be built on a permanent foundation.
If the home is mobile or subject to DMV fees, it is considered a vehicle and will not be eligible for a home mortgage loan.
However, even if the manufactured home is ineligible for conventional home loans, you may be able to obtain financing through other funding options designed specifically for manufactured home purchases.
Age of Home
Lenders and financial institutions are usually wary of financing manufactured homes because these properties depreciate, as opposed to traditional homes, which increase in value.
As a result, before approving a loan, lenders consider the age and condition of the home. Most lenders won't approve the loan if the manufactured home is older than 20 years. Although few lenders accept older structures provided it's in good condition.
Just like with other home loans, you'll need a good credit score and credit history to get funding for your manufactured home. Lenders often require a credit score of 580 to 620. Even if your credit score is low, you can still obtain financing. Keep in mind that a lower credit score implies a larger down payment and/or a higher interest rate.
You must have enough money to make the required down payment. The required down payment ranges between 3.5 percent and 10% depending on your credit score, except for USDA Rural Housing Loans, which require no down payment.
So what kind of loans can finance a manufactured home?
Best Loan Options To Finance A Manufactured Home
There are several financing options available for manufactured home loans. However, we will discuss them in two broad mortgage categories: Traditional Mortgage and Chattel Mortgage.
Traditional mortgages are available to manufactured homes classified as "real property." These loans have lower interest rates and a more extended repayment period.
Examples of a traditional mortgage include;
1. FHA Loans
FHA loans are government-insured loans provided by approved lenders. The loan program is available to manufactured homes under HUD regulations and is divided into Title I FHA Loan and Title II FHA Loan.
A Title I FHA Loan: This FHA loan can be used to finance a manufactured home, the land, or both the home and the land. That is, you do not need to buy or own the land on which the mobile home will be installed before you are approved.
You can also get this loan even if you don't have a perfect credit history, and you'll benefit from low down payments and debt-to-income ratios.
There are, however, loan limits for Title I loans:
The maximum loan amount for a manufactured home is $69,678.
The maximum amount for a manufactured home lot is $23,226.
The maximum for both the manufactured home and the lot is $92,904.
Also, the loan term is typically 20 years if you are purchasing a home and a lot and 15 years if you are only purchasing a lot.
A Title II Loan: is only available for manufactured homes that are permanently affixed to a lot and intended to be occupied as a primary residence. Such property must also qualify as real estate, though not necessarily for state tax purposes.
This FHA cannot be used for manufactured homes on leased land because the loan typically covers both the house and the land on which it is erected. In addition, the down payment is as low as 3.5 percent and has a loan term as long as 30 years.
2. Fannie Mae and Freddie Mac
These are conventional loans that are not backed by the government but regulated by government-sponsored enterprises (GSEs), such as Fannie Mae and Freddie Mac. They can also be used to purchase manufactured homes.
To qualify for a conventional loan;
Your manufactured home must meet certain construction and architectural standards similar to site-built homes.
You can get the loan for a 3% down payment (which could be covered by gifted or grant funds) and a loan term of 30 years.
With conventional loans, you can take advantage of low-interest rates and choose between fixed-rate mortgages with terms of 15, 20, or 30 years. and adjustable-rate mortgages (7/1 or 10/1).
3. VA Loans
VA Loans are loans guaranteed by the Department of Veterans Affairs. So, if you are a current or former service member, you may be able to get 100 percent financing for your manufactured home if you meet the VA manufactured home loan requirements.
To qualify for a VA loan;
Your home must be installed on a permanent site.
Your home must be classified as real estate.
If you want to refinance a home that you intend to move to a piece of land you own, you'll need to file an affidavit of affixture.
You can access a 0% down payment.
4. USDA Rural Housing Loans
The United States Department of Agriculture (USDA) also guarantees manufactured home loans in suburban and rural areas. So if you want to finance your manufactured home with little or no money down, you can apply for a rural housing loan.
You can get a 0% down payment.
Flexible credit guidelines.
Long payment period; 30 years fixed rate.
If your home doesn't qualify for a traditional mortgage, it is considered "personal property" rather than real estate and is better funded with a chattel mortgage.
Chattel mortgages are the most common type of manufactured home financing. In 2020 alone, 42% of manufactured home buyers in the US used personal property loans.
1. Chattel Loans
A chattel loan is a personal property loan used to finance expensive vehicles such as airplanes, yachts, houseboats, recreational vehicles (RVs), and other movable personal property. These assets serve as collateral for the loan. Chattel loans can also be used to finance the purchase of mobile and manufactured homes not built on a permanent foundation.
Requirements for a chattel loan;
They are available for mobile homes; the property does not need to be attached to a permanent foundation.
You do not have to own the land on which a manufactured home is built; chattel loans are only for homes, not the land they are built on.
You can use a chattel loan to buy and refinance a primary residence as well as an investment property.
The loan terms are the same as for vehicle loans; the manufactured home serves as collateral.
They have higher interest rates than conventional home loans but lower interest rates than personal loans.
They provide a shorter repayment period than a standard mortgage, typically between 15 and 20 years, resulting in higher monthly loan payments.
Closing is usually quicker and less restrictive.
Banks and local credit unions offer them.
2 Personal Loans or Hard Money
Personal loans can be used for almost any purpose, such as education, health, business, or vacation funding. They are offered by banks, credit unions, and online lenders. They can also be used to finance a manufactured home that is not permanently attached to a foundation.
Personal loans have a significant advantage over other loan types because;
They are much easier to obtain; they have a simple application process with less paperwork.
They are unsecured and need no collateral. However, personal loans come with higher interest rates than mortgages and auto loans.
They also have a lower loan amount and a shorter repayment period than other loan options. For example, most lenders will not lend more than $25,000 to $50,000, though some will lend up to $100,000.
3. Seller or Manufacturer Financing
Some mobile home sellers and manufacturers provide in-house financing, and you may be able to fund your purchase through this method. However, loan terms and interest rates may differ from one seller to another.
So, before you proceed with seller financing, compare your options with other personal property loans, as both offer more flexible loan requirements as your seller or manufacturer.
How To Obtain A Manufactured Home Loan
Find a Home
Before approaching a lender for funding, you must have identified a home that you want to buy. Choose your preferred home location and the type and size of your manufactured home. Next, examine the age and condition of your home. Next, decide whether you want to buy the land or rent a plot to build your home. Finally, confirm whether your home is classified as real estate or personal property.
Choose a Financing option.
Once you know which category your manufactured home belongs to, it will be easier to determine your financing options. Other factors to consider when choosing a loan option include; your location, credit history, and the amount of money you have for a down payment.
Find a lender
Once you've determined the best financial option for your manufactured home, look for a lender who provides the loan type. It's always best to start with a lender like X2 Mortgage who can either do the mortgage for you at a wholesale level - or direct you to someone who can provide financing on the specific home you're looking at.
Getting pre-qualified for a loan is essential in financing a manufactured home or any other type of home. This entails gathering your pay stubs or W-2 forms and your credit score and debt-to-income (DTI) ratio.
Complete Loan Application
Complete all application processes, including forms and documentation. Fulfill all loan requirements, including the down payment.
Closing and Funding
Once the application process is complete, schedule a closing appointment with your borrower or closing agent to finalize the terms of your loan agreement and pay any necessary closing costs. Then, get your funding and purchase your new manufactured home.
Pros and Cons of Manufactured Home Loans
Wondering whether to buy a manufactured home or not? Here are some of the benefits and drawbacks of purchasing a new manufactured home and obtaining a manufactured home loan.
Manufactured homes are less expensive than traditional houses.
A lower loan amount means smaller payments.
Simplified qualification process.
Smaller fees and closing costs.
Minimum down payment.
Mobile homes, unlike most real estate, lose value over time.
Traditional lenders are reluctant to give manufactured home loans.
Limited loan amount.
Higher interest rates
Not all lenders provide this service.
A manufactured home loan may be an excellent choice to realize your dream of becoming a homeowner.
There are several options for financing your manufactured home purchase, including conventional mortgages and chattel mortgages. Still, before you choose a funding option, it's important to figure out which type of home that fits your needs and budget!