Mobile homes can provide the stability and comfort of a traditional home, but at a much lower price. The catch? If you want to buy a mobile home and finance the cost, 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.
Is It Hard to Get a Loan for a Mobile Home?
When shopping for a mobile home loan, you might also come across the term "manufactured home." Mobile and manufactured home loans are essentially the same thing; "mobile homes" are 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, content 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, staff writer for consumer mortgage information website HSH. 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, according to Andreevska.
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 borrow 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 30 years 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 25 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."
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.
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 approval 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 older 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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