There are several reasons a prospective homebuyer may consider purchasing a mobile home as opposed to a traditional, single-family home. Mobile homes are portable, making them a breeze to relocate to a different city or state, and they are considerably less expensive even when adding in the cost of the land on which they sit.
But homeownership comes with a slew of financial responsibilities, not the least of which involves the upfront expenses required for purchasing a home. The process of buying a mobile home without cash differs from that of a conventional residential property. While there are countless financing options for traditional home purchases, individuals wanting to buy a mobile home have fewer solutions.
Fortunately, there are specialized lenders and government programs readily available to those who want to make mobile homeownership a reality. Before deciding to purchase a mobile home with a loan, here is what you need to know.
Mobile Homes vs. Manufactured Homes
First, it is important to understand the difference between a mobile home and a manufactured home. A mobile home is technically defined as a movable dwelling built before June 15, 1976, while a manufactured home is a similar structure built after that date that meets stringent U.S. HUD standards for quality, durability, and design.
Purchasing a mobile home comes with far more risk than a manufactured home due to a lack of regulation regarding the safety of the home’s construction; this means lenders may be less apt to help an individual finance a mobile home without a significant down payment or a high interest rate.
Manufactured homes, on the other hand, are eligible for numerous home loans through various financial institutions. For the most part, new and used modular homes can be financed like manufactured homes. Let’s look at ways to buy modern mobile homes (manufactured homes) and older mobile homes using loans.
Types of Mobile and Manufactured Home Loans
Chattel Mortgage Loan for Manufactured Homes
Many manufactured homeowners lease the land upon which the home is located, meaning the property is not permanently attached to the ground. This is a benefit for homeowners wanting more mobility and flexibility where they live, but it creates some challenges with finding the right financing.
Chattel loans are designed for this exact purpose, offering financing to qualified borrowers for the home without the land included. Chattel mortgage loans are technically personal property loans instead of real estate loans, which means the loan amounts available are smaller than those for real property. However, the home is still used as collateral.
With a chattel loan, a lender provides long-term financing for the home only, typically 20-25 years, and interest rates between 1 and 2% higher than conventional mortgage loans. Chattel loans offer fixed interest rates, so repayment is predictable.
Borrowers may also pay less in closing costs and processing fees for a Chattel loan, depending on the total loan amount needed to buy the modular or manufactured home.
Conventional Loans for Manufactured Homes
Most lenders will offer you a specialized mortgage through Fannie Mae or Freddie Mac to buy a manufactured or modular home that is attached to land. With a decent down payment and credit score, you should be able to obtain the same terms you would with a traditional single-family residence, as long as it meets some common specifications.
You can expect to put at least 3-5% down and receive a repayment term of up to 30 years. However, the lender may require a higher down payment and a shorter repayment period depending on your situation. Both fixed-rate and adjustable-rate mortgages (ARMs) are available with conventional loans.
FHA Loans for Manufactured Homes
Another option for financing a manufactured home purchase is an FHA loan. Like standard FHA mortgage loans, the federal government insures the lender against loss should a homeowner default on repayment, creating a less risky scenario for the lender and the borrower.
Through the Federal Housing Administration (FHA), two loan programs exist for manufactured homes built in compliance with the updated building codes for manufactured homes (formerly mobile homes): Title I and Title II loans.
– Title I FHA Loan
Title I FHA loans are generally available to homebuyers who plan to purchase a manufactured home but lease or rent the land it sits on. For example, a dwelling in a mobile home park. Lease agreements for the land it will sit on must meet certain FHA criteria to qualify.
Down payments can be as low as 5%, but the amount you pay depends on your credit score and history. Interest rates are fixed for these types of loans, but the repayment period can only extend up to 20 years.
There are also finance programs to purchase a manufactured home with a lot and vacant lot-only financing. However, the lower loan maximums with Title I loans make it difficult to use for the entire combo package.
– Title II FHA Loan
Title II FHA loans are offered to qualified homebuyers purchasing a manufactured home that is permanently attached to the land it sits on. Borrowers must have a relatively strong credit score to qualify, although it does not have to be perfect, and down payments as low as 3.5% are available.
FHA Title II loans require mortgage insurance premiums (MIP), which increases the total monthly payment, and loan terms can be extended to 30 years. Interest rates on these loans are fixed. Mobile homes do not qualify for FHA Title II loans, but both manufactured and modular homes do.
VA Loans for Manufactured Homes
Certified VA home loan lenders offer financing for manufactured homes with repayment terms of up to 25 years and no down payment is required for qualified borrowers. Interest rates are fixed on VA loans, and credit requirements and down payment amounts may be lower than other financing options.
To qualify for a VA Loan, the home must meet specific criteria:
- Meeting all building codes and zoning requirements.
- Conforming with minimum property guidelines through the VA.
- Be permanently attached to the land it sits on.
- Be classified as real property and taxed at the local level.
If you have served in the military or national guard, have been a reservist, or are the surviving spouse of a veteran, you may be eligible for a VA home loan to help purchase a manufactured or modular home.
USDA Loans for Manufactured Homes
The U.S. Department of Agriculture (USDA) offers home financing options for manufactured homes to borrowers in many rural areas and some suburban areas across America.
Through the Combination Construction-To-Permanent Loan Program, Single-family homebuyers can also receive a no-money-down loan, and the USDA will help lenders finance land costs, site development, closing costs, and installation and setup costs for the home.
USDA loans are a great financing option for manufactured home homebuyers. The manufactured or modular home will need to meet some basic requirements, and the final location has to be in an approved area.
Use Home Equity to Buy a Mobile Home
For current homeowners, using the equity in their primary residence to purchase a mobile home and buy the land it will be attached to may be an option. Home equity loans, lines of credit, and cash-out refinance loans offer an affordable way to borrow against accumulated home equity without having to go through the rigorous requirements of securing a new home purchase loan.
Home equity vehicles are only available up to certain amounts, depending on how much equity is in the primary residence used as collateral, and interest rates vary based on the credit history and score of the borrower.
The bank that secures a home equity loan or line of credit may have the right to put a lien against either property should the borrower default, so it is necessary to read the terms and conditions beforehand.
Get a Personal Loan to Buy a Mobile Home
In some cases, a mobile home must be secured to a permanent foundation for a lender to feel comfortable offering financing for the purchase. If a homeowner has no desire to attach their new home to the ground, and one of the other options doesn’t make sense, then a personal loan may be the next best choice for funding the purchase.
A personal loan does not have stringent location or structure restrictions like a mortgage or home equity loan, as it is designed to be a financing tool that does not require collateral.
However, because nothing is backing the loan, the lender bears more risk for lending the money. For that increased risk, borrowers pay higher interest rates and have shorter repayment terms with personal loans.
Where to Find Manufactured, Modular, Mobile Home Financing
Although options for financing a mobile home purchase are limited compared to conventional stick-built home purchases, opportunities still exist for potential home buyers.
You may be able to find the right loan for your home purchase through the manufacturer of the home or dealer, a specialty lender, your bank or credit union, an online lender, or a local mortgage broker.
Final Thoughts on Financing a Mobile Home
Owning a mobile home offers a level of freedom not easily found with a conventional single-family home, but there are fewer options for financing the purchase of one. Determine whether the home is considered a mobile, manufactured, or modular structure, then evaluate your lending options carefully.
As with any other home purchase, you will need to have a healthy credit score, verifiable income, and documents showing your assets, such as bank accounts or investment account statements, to qualify. Some loans require a down payment, while others do not.
Selecting the loan type that fits your circumstances best requires some due diligence on your part. Be sure to review the terms and conditions of your loan, including the interest rate and APR, repayment period, and other costs associated with getting the loan.
Finally, it’s good to know that mobile home equity will not accrue as fast as it typically does stick-built homes. Just something to keep in mind when considering property investment and planning for the future. Newer manufactured and modular homes on land also owned by the homeowner and taxed as a single entity do a better job at maintaining their value and increasing over time.
