he problem with a number of mainstream media reports on the topic of financing is that they really don’t understand manufactured housing, and so their reports are often flawed – hit-and-miss accurate – as a result.
For example. Perhaps you’ve heard stuff in the media that make it sound like financing a factory-built home is harder or more costly. For those who know the ropes, how accurate are those reports? Or you might read or hear news media and writers often use the words “mobile home” or “manufactured home” or “modular home” interchangeably, yet that’s flat wrong.
Modular Home Mortgages
As we’ve previously reported, modular homes are built largely indoors to state or local building codes, while manufactured homes are built to the only federally preemptive performance-based building code (to learn more about the differences between manufactured and modular homes, click here).
So financing a modular home should be the same as getting a mortgage on any conventional housing. While there are lenders that specifically advertise doing modular home loans, any informed lender should finance a modular home and have it appraised for the same mortgage terms you’d get on an on-site-built (aka “stick built”) conventional housing.
When you buy a modular home and have it financed, it’s permanently installed on the property it will be located on, and thus will be considered “real property” or real estate. Some who do factory-built home sales refer to these transactions as ‘land/home’ package deals.
“Trailers,” “Mobile Homes” and Manufactured Homes
These three names represent three eras for factory-built houses built on frames, and each are DIFFERENT. The video at top and other articles linked at the end of this column will give more information about those differences. Briefly, there have been no mobile homes built in the U.S. since June 15, 1976.
So when you see a journalist or writer refer to a HUD Code manufactured home as “trailer house” (sic), or as a “mobile home” (sic), that report is already inaccurate and could have other errors in it too.
A home built to the federally regulated and preemptive HUD Code for manufactured homes is by definition built on or since that date in June 1976.
“Home Only” Lending – about 2 of 3 Manufactured Home Loans
Many buyers pay cash for a manufactured home. But for those who are financing, unlike conventional housing or modular homes, broadly speaking, manufactured homes have two different ways to be financed. One method is via a “land/home package,” which means it will be financed as real estate.
Manufactured homes financed and appraised as real property can quality for FHA Title II, VA, USDA and other conventional mortgage loans.
What makes manufactured homes unique in American home lending is that they can be – and often are — financed as chattel — also known as a personal property or “home only” loan – instead of as real property mortgage.
Those who own or purchase property for a manufactured home thus have two options,
That process has some variations between states, which your lender or manufactured home retailer can provide guidance on.
The majority of the estimated 8.8 million pre-HUD Code mobile and post-code manufactured homes (MH) are located on privately owned, individual parcels of land.
But perhaps 3 million of those homes in the U.S. are located in a land-lease setting, what is commonly called a “mobile home park,” but is better known today as a manufactured home community or a land-lease community.
For those who live in parts of Chicagoland, Hawaii or other parts of the U.S., conventional housing may also be built on a land-lease. A significant part of commercial real estate buildings are on a land-lease too. Without going into those details today, we’ll simply note that there can be advantages to leasing land vs. buying it. Those advantages can include:
There have been a limited number of mortgages made in land-lease manufactured home communities, but this is generally not readily available today. There is a significant debate and discussion in Washington, DC and beyond exploring expanding options for getting Fannie Mae, Freddie Mac or other mortgages for manufactured homes on land-lease, but those are not yet settled.
So for those who are thinking about buying a home on a land-lease, odds are that you’ll be getting a personal property – “chattel” or “home only” – loan.
Home-Only Loans Can Be Competitive
Other than on FHA Title I loans, which are available for home-only manufactured home loans, there are generally no federal loan guarantees.
So because a lender keeps that loan on their books, the rates on manufactured home loans will commonly be a few points higher than a conventional housing loan. But keep in mind that buyers routinely save on closing costs, appraisals or fees, and your home may be taxed at a far lower rate than real estate is.
Also, if you go long-form on your income tax, you can deduct the interest on your home loan the same as you do on a house mortgage. So when you look at the total picture, the personal property loan can be quite competitive to mortgage lending.
The key for most buyers comes down to two numbers – how much money down, and how much are the monthly payments.
Because manufactured homes are a fraction of the price, payments on manufactured homes are routinely the most affordable kind of housing payment, as the two payment charts on this page reveal.
Triad Financial Services, CU Factory Built Lending and 21st Mortgage are the primary personal property MH finance sources here in the U.S.
While some local banks make manufactured home loans, it is more common to find that a credit union will make such loans.
While there are close to 9 million pre-HUD Code mobile homes and post-code manufactured homes in the U.S., that’s only about 7% of the 124 million households living in all other types of housing. So bankers often have limited or no experience in manufactured home lending. Bankers will often understandably shy away from what they don’t know. So if you don’t already have a good relationship with a local bank or credit union, or if they aren’t experts in manufactured home lending, often the easiest way to obtain competitive financing is to go with one of those lenders noted above.
Ignorance can be costly, and knowledge can pay! You may get a wide range of well-meaning advice from people who truly aren’t experts in manufactured housing, much less about manufactured home financing. Lenders like those linked above have toll-free numbers, and employ licensed staff that can answer questions and process applications, originate and service loans.
Big Brother Made Getting Facts and Advice Harder
Lamentable CPFB implementation of regulations has effectively gagged unlicensed retailers or communities. So even if the seller knows a lot about lending, unless they hold an MLO license, they may not be able to give you a lot of guidance beyond handing you brochures or pointing to a list names of the lenders in your area that make manufactured home loans. You can learn more about the that harmful part of the impact of Dodd-Frank and the CFPB’s regulations at the articles linked below.
Timing and the Bottom Line
All lending has been slowed since CFPB regulations went into effect. An NAR study revealed that one of the biggest surprises for any home buyer is that it takes longer than they thought to get a home loan.
So try to avoid unnecessary stress by planning ahead when you are ready to buy a home. The more time you allow for financing, the more pleasant your home buying experience will likely be. If you plan to custom order a home, you should be thinking a few months in advance. Whenever available, getting pre-approved for manufactured home financing can be a good idea when you are getting ready to go shopping for your home. Good, reputable home retailers in your area can give you a good idea on how long the financing process can be.
Depending on your credit and down payment, comparing your options between the lenders in your market will lead you to the best terms. With typically lower monthly payments than other forms of housing, because manufactured homes are born greener and more energy saving by design, buying a manufactured or modular home can be a great choice for you, as it has been for millions of others.
A manufactured home is a factory-built home which is constructed on a permanent chassis so that it can be easily moved, even though most manufactured homes are not moved from where they’re first installed.
Sometimes manufactured homes are confused with modular homes or prefab homes, but they are different things. Modular homes can be built “on-frame” — with the chassis, or “off-frame” modular, which means that the chassis is removable. Usually, modular homes are attached to private land.
Manufactured homes also differ from mobile homes because they follow a uniform construction code outlined by the U.S. Department of Housing and Urban Development Title 6 standards, also known as “HUD code.” A home that was built following this HUD code will have documentation called the Certification Label and the Data Plate. This information is important and irreplaceable as it can impact the selling, financing and insuring of the manufactured home.
Mobile home financing can be tricky, but it’s not impossible. The one thing that will increase the chances of a homebuyer getting approved is owning the home site on which the mobile residence will be located. If, on the other hand, the buyer plans on living in a mobile home park and paying space rent to the owner of that land, then the chances of getting financing through a bank are reduced.
The same type of logic goes for people who want to finance a manufactured home — whether or not that home is already attached to land can make or break the approval of a loan. In both scenarios, having good credit will help your chances of getting approved for financing or a more competitive interest rate.
Although it’s not impossible to get a conventional loan for a manufactured home, it can be tougher than getting financing with a Federal Housing Administration Insured Loan. Fannie Mae and Freddie Mac lenders do make conventional loans on manufactured homes, but the specific lender you want to use must meet specific requirements.
For example, Freddie Mac requires loan originators to comply with their Single-Family Seller/Servicer Guide Chapter 5703. This guide sets out several rules including requiring a minimum down payment of 5 percent, which has to be paid for out of the borrower’s personal funds, for all purchase transactions.
Additionally, Freddie Mac requires originators to consider the added collateral risk a manufactured home poses and, in conjunction with credit reputation, capacity and collateral of the borrower, use that added risk consideration to assess the overall risk of the mortgage loan.
One advantage Freddie Mac does offer is to borrowers who own the land on which the manufactured home will be attached. This land might be used as an equity contribution.
The difference between borrowers who own land and those who don’t is that the manufactured home is considered “real property” in the former circumstance and, in the latter, it’s considered “personal property.”
For borrowers who are leasing the land on which the manufactured home will be located, a common option is chattel mortgage loans. The drawbacks of a chattel mortgage loan are that the interest rates are higher and the terms are usually shorter than conventional or FHA loans, so monthly payments will be higher.
Borrowers who have good credit, which by today’s standards is around a 720, might land a loan with rates in the high 6-percent range. People with lower scores might be facing higher interest rates of 10 percent or more.
If you plan on living in the home for several years or more, your best bet might be to also buy the property along with the home. Buying both the property and the home will most likely expand your interest rate options, leading to a better deal in the long term. Whatever you choose, be sure to research loan options before committing to an expensive loan or one with terms you’re not completely comfortable with.
The FHA is in the business of insuring, not making, loans. By backing loans, the FHA encourages lenders to loan money to would-be homeowners. What that means is if the borrower stops making payments and ends up defaulting on the loan, the FHA would make a payment to the lender.
FHA loans fall under the Title I program which includes manufactured homes. One major benefit to these loans is that the FHA guidelines require them to be fixed throughout the full mortgage term, which is usually twenty years. Adjustable rate mortgages, therefore, would not be eligible for FHA backing.
Another important benefit, especially for people who will lease the land on which their manufactured home will be located, is that the FHA does not require the borrower to own the land. One stipulation to this is that the lessor must lease the land to the borrower for a minimum of three years in order to qualify for a loan.
The maximum loan amounts for Title I insured loans are as follows:
To be approved for a Title I insured loan the applicant’s credit history is reviewed and considered, the borrower must be deemed able to make monthly payments and this must be the primary residence of the borrower.
Like FHA loans, Veterans Affairs loan guarantees offered by the Department of Veterans Affairs are insurance for lenders in case the borrower defaults on the loans. Manufactured homes — both with owned and leased lots — might get VA loan guarantees, however, the amount the VA will cover differs for each setup.
For manufactured homes that will not be put on a permanent foundation, borrowers can get a loan for up to 95 percent of the home’s purchase price. VA will guarantee 40 percent of the manufactured home loan amount or the veteran’s available entitlement, up to a maximum amount of $20,000.
Eligible parties — service members, veterans, spouses, and other eligible beneficiaries who are eligible for a VA loan — must present a certificate of eligibility or COE to qualify for VA-guaranteed manufactured home loans and they must reside in the home.
These COE requirements vary, but include specifications like minimum active duty service requirements and marriage status, in the case of an eligible spouse. Along with a COE, the borrower must also meet other requirements including a good credit rating and enough income to make the monthly mortgage payments.
When it comes to finances, pre-fabricated homes are treated differently from other types of more conventional home builds. Pre-fabricated homes come in a variety of sizes, styles, and price ranges, and are one of the best options for homeowners looking for sustainable and easy-to-build housing. Nevertheless, there are some considerations that need to be made regarding the financing of these homes.
Conventional construction mortgages can be used in the building of a pre-fabricated or modular home. They cannot be used when building a mobile home -- a mobile home requires a specific type of loan. This is one of the largest considerations for those who are deciding between the two types. Though a modular, pre-fabricated home will generally be more expensive than a mobile home, the difference in funding options may be enough to still make a pre-fabricated home the better choice financially.
Quality levels need to be considered if a property owner is considering later selling the property or taking out a home equity loan. Prefab homes in San Diego can range from affordable "tiny houses" to quite expensive luxury builds. A home is considered pre-fabricated if the parts are created somewhere else and merely assembled on-site. It cannot be assumed that a home is cheap or that it is of low quality because it is pre-fabricated. But because of this, a home buyer has to be especially conscientious when they compare different builds. The type of pre-fabricated home selected will greatly influence the assessed value of the property and its sale value later on.
Mobile homes -- even ones that are built to be stationary -- have an infrastructure that can be moved if necessary. This is why mobile homes can commonly be placed on leased land. Modular homes are different: though some of them can be disassembled and moved, the majority are not meant to be moved once they have been fully assembled. This provides for unique designs and architecture when compared to traditional mobile homes, but it also means that the home buyer will have to purchase land before they purchase a modular property.
Financing a pre-fabricated home is very similar to financing a conventional property. There are only two major differences: the pre-fabricated home will not cost enough and will need to be purchased separately from the land that it is to be put on. Many companies that sell modular homes also have relationships with local financiers, to make the process easier for the customer.