If you'd like to buy a property with a lower purchase price and still benefit from a wide range of options, a mobile home – now commonly called a manufactured home – might work as a good option for homeownership. However, since these properties may sit on land that you don't own and may not have a permanent foundation, you can encounter some challenges qualifying for a mortgage. The good news is that you have several manufactured home loan options to consider that range from mortgage programs to personal loans. Use this guide to understand how you can finance your modular home and what lenders will consider about you and the home in the process.
Understanding Mobile Homes
A mobile home or manufactured home refers to a property that the builder constructs at a factory and then transports to the location where the home will sit on the land. Prior to the late 1970s, this type of housing was referred to as a mobile home since the house may have had wheels and resembled a camper. However, a modern manufactured home has to meet specific requirements that include a permanent chassis and various safety measures. Further, the home can have a permanent foundation so that the structure doesn't ever move from where you initially install it.
When you buy a mobile home, you may or may not own the land as well. For example, you might buy a mobile home in a mobile home park or community where you pay a lot rental fee for the duration you live on that home site. On the other hand, you could also buy a piece of land somewhere and have a mobile home installed there so that you own both the real estate and home. This decision will affect the cost of your home purchase since you'll need to compare the cost of a personal property loan for purchasing land versus renting a lot that may come with extras like some utilities included.
Some benefits of going with a mobile home include flexibility, quality and cost savings. You could later decide to move your mobile home to a different home community, there are plenty of floor plans available, you can expect a quality build and you can pay significantly less than for a traditional single-family house. Potential downsides include challenges when you don't own the land, the potential for depreciation, the need for unique financing options and the potential to have a harder time selling such a property later to a homebuyer.
Read More: The Pros & Cons of Buying Manufactured Housing
Considering Mobile Home Financing
Although you can find mobile homes for a cheaper price than traditional homes, you may still need a home mortgage, as well as financing for any land you purchase. If you have a new mobile home constructed and transported to the site, you can incur a variety of construction and transport costs that you'd prefer to get rolled into a single loan. The various methods of financing a manufactured home usually allow you to cover these costs, but your options will depend on the specific property and manufactured home financing arrangement.
For example, regular mortgage programs often require homeowners to buy or own the land along with the home. So, if your mobile home is on a leased lot, you might have to consider a special government-backed program or look into options like personal and chattel loans. These different options come with different requirements and interest rates that you'll need to weigh in your decision. Further, many loan types use your mobile home as collateral in case you don't pay. This is significant if this is your primary residence or if you are first-time homebuyers who take the maximum loan amount and run into financial difficulties
The loan amount needed and your financial picture also play a role since you can struggle to get mobile home loans if you borrow too little or too much, if your credit history is too short, your credit score is too low, if you have a high debt-to-income ratio (DTI) or if you don't have enough money for a down payment. Therefore, do your research and reach out to lenders about the different financing options you'll learn about to see what may work.
Read More: What Is the Meaning of Home Loan?
FHA Loans for Mobile Homes
The U.S. Department of Housing and Urban Development (HUD) offers a special Federal Housing Administration (FHA) loan program that can help you finance the mobile home as well as any land you purchase for it. However, the program doesn't require you to own land, so leasing a lot works fine for an FHA loan as long as the lease term starts at three years minimum. The FHA will require that the home and the installation meet its standards, and manufactured home construction manufacturers often indicate this.
Depending on the type of home and/or land you purchase, you might have a term of 15 to 25 years as well as borrowing limits ranging from $23,226 to $92,904. The program has a minimum credit score requirement of 500 with a 10 percent down payment, but a 580+ score allows a lower 3.5 percent down payment. Mobile home loan borrowers pay FHA mortgage insurance with upfront and annual amounts due and typically need a 43 percent back-end DTI ratio.
Read More: What Makes a Home FHA Eligible?
USDA Mortgages for Mobile Homes
Available when you'll purchase both a lot and a qualified manufactured home, the U.S. Department of Agriculture (USDA) home loan program can help you if you want to live in a rural location without a large population and are considered to make a low or moderate income in the area. The manufactured home should be new since the USDA has a 12-month home age limit at the time of purchase and doesn't let you finance a mobile home that sat on a location other than the dealer. The USDA also has several standards your manufactured home must meet.
USDA loan borrowers need to have an eligible income but can benefit from not needing to make a down payment as long as they qualify. The credit standard is higher than other loans since lenders like to see a 640+ credit score, and the back-end DTI ratio is a stricter 41 percent. The USDA also requires that borrowers pay annual and upfront guarantee fees.
Read More: What Types of Homes Are Approved for USDA Loans?
Conventional Loan for Mobile Homes
As long as your mobile home has a permanent foundation on the land you own, you could qualify for mobile home financing through the MH Advantage program that Fannie Mae offers. The manufacturer of the manufactured home will mark the home if it's qualified for this type of financing since the home has to meet several standards Fannie Mae sets. For example, it has to be energy efficient, feature certain architectural and construction qualities and usually not be a single-wide property. Further, the house has to have a suitable driveway and sidewalk.
The requirements for this mobile home loan include a credit score of 620 or better, at least 3 percent of the purchase price for your down payment and cancelable PMI for loans with less than a 20 percent down payment. While Fannie Mae doesn't have income limits for this type of financing, it does limit what you can borrow based on the mobile home's location. You'll also usually need a maximum 45 percent DTI ratio to satisfy the lender.
Read More: Credit Score for Mortgage Rates: How It Works
VA Loans for Mobile Homes
A purchase loan through the U.S. Department of Veterans Affairs (VA) can cover mobile home and/or lot purchases for people who can verify they have an affiliation with the military as well as show proof of a minimum time of service. For example, some groups who qualify for this financing include those served 90 days in a war, someone who spent six months in the Reserves or the spouse of someone who passed away in a war. A VA loan won't work if you lease rather than own the land, and the mobile home will need to adhere to all the VA's guidelines to qualify.
While VA loans traditionally don't require any money down, lenders may require a 5 percent down payment for a manufactured home loan as well as have stricter requirements for qualifying due to the higher risk involved. The minimum credit score usually starts at 620, while the maximum back-end DTI is often 41 percent. You'll pay a funding fee for this type of loan, and lenders may have a minimum loan amount for mobile homes.
Read More: Is There a Mortgage for Bad Credit Ratings?
Getting a Chattel Loan
A popular alternative to seeking a traditional mortgage for a mobile home is to take out a chattel loan designed for movable possessions such as mobile homes and vehicles. Like with a mortgage, the lender takes the property as collateral, but this will include just the home and not any land owned. This means you can use this mobile home financing method in a situation where you lease the land and thus overcomes the challenges you can experience with some of the mortgage programs discussed.
You can expect a chattel loan to have a shorter term, lower amount and higher interest rate than a mortgage would, so your monthly payments would be more, and your buying power may be less. Lenders set their own requirements for things like credit scores, DTI ratios and down payment amounts, so there is more flexibility for borrowers. If you have a great credit score, your lender might waive a down payment, while you can end up with a high interest rate and large down payment requirement – perhaps up to 35 percent – if you have poor credit.
As long as your mobile home has a permanent foundation on the land you own, you could qualify for mobile home financing through the MH Advantage program that Fannie Mae offers.
Choosing a Personal Loan
Because you can find a mobile home at a competitive price, you might consider using a personal loan from a credit union or bank as your financing method. This option differs from chattel loans and mortgages in that it's an unsecured loan, so it's not backed by your mobile home, and there's not a down payment needed to take out the loan. However, there's a chance that the bank won't loan you enough for the whole purchase price, and personal loan terms usually are much shorter. For example, Wells Fargo offers one- to seven-year personal loans with a maximum amount of $100,000.
If you use a personal loan, the bank will give you the money upfront for you to use for the mobile home, and you might avoid costs like origination fees with this option. You should keep in mind, however, that they do not often offer competitive rates and your interest rate is usually higher than with a mortgage. The higher interest and shorter term can mean less affordable payments versus one of the other options, but a personal loan does provide a lot of flexibility since you don't need to worry about meeting certain home standards to get the financing.
Read More: How Long Do You Have to Pay off a Personal Loan?
Applying to Loan Programs
With the types of home financing options in mind, start researching potential lenders that have mortgage programs for these types of properties or offer chattel or personal loans. You can also check with mobile home manufacturers to find out which loan programs they're affiliated with and find out if any special offers are available.
While the application process will depend on the loan, you can expect at the least to provide initial financial data and go through a pre-approval step that can lead to a loan offer and terms that help you decide how to move forward. Your lender will walk you through requirements as well as funds you may need to pay upfront such as a down payment for mortgages and chattel loans and closing costs for mortgages; personal loans usually don't have any money you need to pay upfront.
You'll eventually complete the rest of the loan application process that can be quick or extended depending on the type of loan. For example, you could get a personal loan in no more than a few days, while a mortgage loan can take up to 45 days to finalize. Lenders often require documents to verify your information along the way as well as give you papers to complete. Once everything's processed, you'll be ready to make the monthly payments on your mobile home loan.
Read More: Where to Get Pre-approved for a Home Loan?
- Lending Tree: Minimum Mortgage Requirements for 2021
- Wells Fargo: Personal Loans
- Clayton Homes: What's the Difference? - Mobile vs. Manufactured vs. Modular Homes
- Nolo: Buying a Mobile Home Instead of a Regular Home: Pros and Cons
- FDIC: MH Advantage
- Virginia Law: § 38.2-1439. Chattel Mortgages.
- Quicken Loans: What Is A Chattel Mortgage And When Would You Use One?
- Braustin Homes: Chattel Loans: The Easiest Way to Buy a Mobile Home
- U.S. Department of Housing and Urban Development: Financing Manufactured (Mobile) Homes
- U.S. Department of Agriculture: Single Family Housing Guaranteed Loan Program
- U.S. Department of Veterans Affairs: Purchase Loan
- Lending Tree: VA Loans For Manufactured Homes: What They Are and How They Work
- Consumer Financial Protection Bureau: Understand Loan Options
Ashley Donohoe has written about business and technology topics since 2010. Having a Master of Business Administration degree, bookkeeping certification and experience running a small business and doing tax returns, she is knowledgeable about the tax issues individuals and businesses face. Other places featuring her business writing include Zacks, JobHero, LoveToKnow, Bizfluent, Chron and Study.com.