Mobile homes can provide the stability and comfort of a traditional home but at a much lower price. The catch? Financing a mobile home can be more difficult than taking out a regular mortgage.
Here’s what you need to know if you want a mobile home loan.
What Are Mobile Home Loan Requirements?
If you want a mortgage for a mobile home, it must qualify as real property and not personal property. Real property refers to land and permanent structures, while personal property pertains to movable items.
“When approaching the purchase of a mobile home, you first need to determine whether it’s on a permanent foundation,” says Matthew Yu, senior vice president of loans and investments at real estate lending and investment firm Socotra Capital.
The traditional loan programs have options as long as the manufactured home sits on a foundation, the axles have been removed, and the home is attached to land you own or lease. The home must also be at least 400 square feet.
If the home does not meet the requirements for a mortgage, you will need to apply for a chattel loan, says Daniela Andreevska, vice president of content for Mashvisor, a real estate data analytics company.
Note that the terms mobile home and manufactured home are often used interchangeably, but they are not the same thing. A manufactured home meets federal construction and safety standards put in place after June 15, 1976, while a mobile home does not.
Types of Mobile Home Loans
Your mobile home must meet specific criteria to qualify for certain loans. Here are some options to consider when financing a mobile home:
Conventional Mortgage Programs
- Fannie Mae. Fannie Mae’s MH Advantage program can help you pay for your mobile home as long as the title includes the home and the land it’s on. The home should qualify as real property. Borrowers can access fixed-rate mortgages with terms of up to 30 years, as well as 7/6 and 10/6 adjustable-rate mortgage loans, or ARMs. The down payment can be as low as 3%. Some homes are ineligible, including investment properties and single-wide homes.
- Freddie Mac. A manufactured home must be considered real property to qualify for a Freddie Mac loan. Options include 15-, 20- and 30-year fixed-rate mortgages, as well as 7/6 and 10/6 ARMs. Both primary residences and second homes qualify, but investment properties don’t. You can put down as little as 3%.
Government-Backed Mortgage Programs
- Federal Housing Administration. FHA Title I and 203(b) loans are available for manufactured homes. Title I loans come with terms of up to 25 years, or 30 years for 203(b), and allow for down payments as low as 3.5%.
- Department of Veterans Affairs. Some VA lenders finance manufactured homes attached to a permanent foundation and classified as real property. VA loans can be used to purchase a manufactured home; to buy a home and a lot; to refinance a loan for a home and purchase a lot for it; and to refinance a VA loan for a manufactured home and a lot. You can typically borrow with no money down and no mortgage insurance.
- U.S. Department of Agriculture. USDA loans may be used to finance eligible new manufactured homes, set-up costs and sites. Contact an approved lender or your local Rural Development Office for more information.
A chattel loan is designed specifically for purchasing movable property, such as a manufactured home.
“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.
The closing process is typically faster with chattel loans because of their simplicity, and processing costs are lower than conventional mortgages. However, the amount you can borrow is usually much smaller than a traditional mortgage.
Repayment periods are also usually limited to 15 to 20 years. Chattel loans also tend to have higher interest rates. “This means that overall, the monthly payment amounts often actually exceed the payments on a conventional home,” Andreevska says.
A manufactured home is more affordable than a site-built home, which might allow you to cover the cost with a personal loan.
Loans may be unsecured or secured, requiring collateral in case you default. Unsecured personal loans tend to have higher interest rates and lower loan limits than traditional mortgages.
You may be able to 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.
If you’re buying a mobile home from a private owner, you might be able to work out a financing deal with the seller. Make sure the home’s title is clear, meaning no liens or judgments against it, and the seller owns the home.
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How to Get a Loan for Your Mobile Home
The steps to securing mobile home financing will vary quite a bit depending on your property. Here’s an idea of what to expect when you’re ready to get a loan for your mobile home.
Check your credit reports. See what shape your credit is in before you apply for financing. You can access free weekly credit reports from the three major bureaus through 2023 at AnnualCreditReport.com. Dispute errors with the appropriate bureaus to clean up your credit history. The better your credit, the lower your interest rate, potentially saving you thousands of dollars over the life of a loan. Note that minimum credit scores for mobile home loans vary greatly based on the type of loan and the lender.
Decide what to buy. You’ll need to figure out whether you want to purchase land in addition to the mobile home. Nail down specifics of the home. For example, do you want a single- or double-wide home?
Determine the type of loan you need. Ask yourself a few questions to figure out what’s best. For example, are you buying a home only or land as well? Is the home fixed to a foundation? What is the age and condition of the home? All of these factors will affect loan eligibility.
Shop for financing options. Get quotes from several lenders and compare costs. You’ll want to find a lender that can offer the lowest rate and closing costs for your desired repayment term. Make sure the monthly payment and any down payment fit your budget. Also, don’t forget to check user ratings for lenders at Better Business Bureau and other review sites.
Apply for the loan. Gather paperwork to streamline the process. The exact documents you’ll need will depend on the loan you choose, but expect your lender to ask for:
- Proof that you own the mobile home, such as a sales contract.
- Evidence of income, such as recent pay stubs and W-2 forms from the last two years.
- Source of funds if you’re required to make a down payment.
- Proof of homeowners insurance, if required.
- List of debts and liabilities, including credit cards, student loans and car loans.
- Divorce decree or court order stating the amount of alimony or child support you owe, plus proof of receipt.
Challenges to Watch Out for When You Buy a Mobile Home
The biggest problem is securing financing for a mobile home. Lenders denied more than half of applications for manufactured home financing in 2021, according to the Pew Charitable Trusts. The rate was just 7% for site-built home buyers.
Applicants fared much better with government-backed loans compared with conventional mortgages and worst of all with chattel loans. Those were denied 64% of the time for manufactured housing, according to Pew research.
Pew data shows that higher credit standards for manufactured home borrowers make conventional mortgages and chattel loans more difficult to obtain than conventional mortgages for site-built homes or federally backed loans for manufactured homes.
Other concerns with buying this type of home:
- It doesn’t appreciate as much as a single-family home or may lose value over time.
- You will need to find undeveloped land or space in a mobile home community for it.
- Some financing options come with higher interest rates and shorter terms than mortgages.
- You will have to pay if you want to move the home.
- Homes built on temporary foundations can be prone to damage.
- It may not be easy to sell.
At the same time, homes can be affordable and customizable, with high quality standards. The right home could be a cost-effective alternative to a stick-built property.
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