At a far lesser cost, mobile homes may offer the stability and comfort of a regular home. The problem? It may be more challenging to finance a mobile home than it is to obtain a traditional mortgage.
If you want to borrow money for a mobile home loan, read this.
What Conditions Apply to Loans for Mobile Homes?
A mobile home must meet the criteria for real property and not personal property if you wish to get a mortgage for it. Personal property is anything that is moveable, whereas real property is land and permanent constructions.
“When approaching the purchase of a mobile home, you first need to determine whether it’s on a permanent foundation,” advises Matthew Yu, senior vice president of loans and investments at real estate lending and investment firm Socotra Capital.
There are possibilities for the customary loan programmes. as long as the manufactured home is affixed to land that you own or rent, has a foundation, and the axles have been removed. Additionally, the house must have 400 square feet or more.
You will need to apply for a chattel loan if the house doesn’t qualify for a mortgage, advises Daniela Andreevska, vice president of content for Mashvisor, a provider of real estate data analytics.
It should be noted that although the terms “manufactured home” and “mobile home” are sometimes used synonymously, they are not the same. A mobile house does not adhere to federal construction and safety regulations that were put in effect after June 15, 1976.
Types of Mobile Home Loans
For some loans, your mobile home must fit certain requirements. When financing a mobile home, you may want to take the following into account:
Programmes for Conventional Mortgages
- Fannie Mae. As long as the title includes both the house and the land it is on, Fannie Mae’s MH Advantage programme may be able to assist you in paying for your mobile home. Real property should be able to claim the house. Borrowers have access to fixed-rate mortgages with lengths of up to 30 years as well as ARMs with terms of 7/6 and 10/6. The minimum down payment is only 3%. Certain residences, such as single-wide homes and investment properties, are ineligible.
- Freddie Mac. For a manufactured home to be eligible for a Freddie Mac loan, it must be regarded as real property. Options include 7/6 and 10/6 ARMs, as well as 15-, 20-, and 30-year fixed-rate mortgages. Primary homes and second homes are both eligible, however investment properties are not. You can only deposit up to 3%.
Mortgage programmes backed by the government
- Federal Housing Administration. For manufactured homes, FHA Title I and 203(b) loans are available. Title I loans allow for down payments as little as 3.5% and have periods as long as 25 years, or 30 years for 203(b) loans.
- Department of Veterans Affairs. Some VA lenders provide financing for manufactured homes that are affixed to a solid foundation and are regarded as real estate. A mobile house, a home and a lot, a refinance loan for a home and a lot, and a refinance loan for a manufactured home and a lot are all eligible uses of VA loans. Typically, no down payment and no mortgage insurance are required for borrowing.
- U.S. Department of Agriculture. Loans from the USDA may be used to pay for sites, setup fees, and new manufactured homes that qualify. For additional information, get in touch with a recognised lender or your neighbourhood rural development office.
Buying moveable property, such a manufactured home, is the sole purpose of a chattel loan.
“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 claims.
Due to their simplicity and lower processing costs compared to traditional mortgages, chattel loans often close more quickly. However, you can typically borrow far less money than you would with a conventional mortgage.
Repayment terms are typically 15 to 20 years long. Additionally, chattel loans typically have higher interest rates. According to Andreevska, “this means that overall, the monthly payment amounts frequently actually exceed the payments on a conventional home.”
A manufactured home is less expensive than a site-built one, so you might be able to get a personal loan to pay for it.
Loans can be secured or unsecured, with collateral needed in the event of default. Compared to conventional mortgages, unsecured personal loans typically feature higher interest rates and smaller borrowing limits.
Direct financing may be available from the dealership selling your mobile home. This type of mobile home financing is referred to as a retail installment contract.
You might be able to arrange financing with the seller if you’re buying a mobile home from a private party. Verify that the seller owns the property and that the title to the house is clear, meaning there are no liens or judgements against it.
How to Apply for a Mobile Home Loan
Depending on your property, the procedures for obtaining finance for a mobile home will change considerably. When you’re prepared to obtain a loan for your mobile home, here is an idea of what to anticipate.
Check your credit reports. Before you apply for financing, find out how your credit is doing. Through 2023, AnnualCreditReport.com will provide free weekly credit reports from the three major bureaus. To repair your credit history, file a dispute with the proper bureaus regarding any mistakes. The lower your interest rate, the more money you could possibly save over the course of a loan. The better your credit. It should be noted that depending on the type of loan and the lender, the minimum credit scores for mobile home loans vary substantially.
Decide what to buy.Whether or whether you want to buy land in addition to the mobile home is something you must decide. Be descriptive about the house. Do you like a single- or double-wide home, for instance?
Determine the type of loan you need.Obtain estimates from various lenders and evaluate prices. You should look for a lender that can provide the lowest rate and closing charges for the repayment term you wish. Ensure that both the down payment and the monthly payment are within your means. Don’t forget to look at the Better Business Bureau and other review sites’ user ratings for lenders.
Apply for the loan. Amass documents to speed up the procedure. Depending on the loan you choose, you’ll need specific paperwork, but anticipate that your lender will require:
- Evidence showing you are the owner of the mobile home, like a sales contract.
- Evidence of income, such as W-2 forms from the last two years and most recent pay stubs.
- a source of finances in case a down payment is necessary.
- if necessary, evidence of homeowner’s insurance.
- List of obligations, includes credit card debt, student loan debt, and auto loan debt.
- a divorce judgement or court order detailing your obligation to pay alimony or child support, together with receipt documentation.
Challenges to Watch Out for When You Buy a Mobile Home
Financing a mobile home is the toughest challenge. According to the Pew Charitable Trusts, more than half of applications for financing for manufactured homes were turned down in 2021. For purchasers of site-built homes, the rate was only 7%.
When compared to traditional mortgages, applicants performed far better with government-backed loans; conversely, they fared the worst with chattel loans. According to Pew data, those were turned down for manufactured housing 64% of the time.
In comparison to conventional mortgages for site-built homes or federally backed loans for mobile homes, Pew data demonstrates that tighter credit standards for manufactured home borrowers make regular mortgages and chattel loans more challenging to obtain.
Additional issues with purchasing this kind of house:
- It doesn’t increase in value as quickly as a single-family home and could even depreciate over time.
- You’ll need to locate some undeveloped property or room for it in a mobile home park.
- Compared to mortgages, some financing solutions have higher interest rates and shorter durations.
- If you want to move the house, you will have to pay.
- Homes constructed on flimsy foundations are susceptible to destruction.
- Selling might not be simple.
Homes can be high quality, personalised, and economical all at the same time. The correct house could be a more affordable option than a stick-built building.