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Mortgage Loans for Manufactured Homes

By Arvin Sahakian · Jul 22, 2015 · Mortgage

Mortgage Loans for Manufactured Homes

Image courtesy of Flickr, Jeremy Levine

Manufactured homes offer an inexpensive alternative to typical housing. Learn what a manufactured home is and the types of mortgage loans available

Nearly six percent of all homes sold in the U.S. are manufactured homes. Some people who want to purchase manufactured homes may not realize they can be eligible for home loans, much like purchasing a traditionally built home.

It is important that anyone interested in purchasing a manufactured home realize their rights, and their opportunities when seeking financing.

What is a Manufactured Home?

Manufactured homes are factory-built homes, and according to government definitions are not the same as mobile homes or trailers.

To qualify as a manufactured home, according to the government, the home must be at least 320 square feet and be built on a permanent chassis. Meeting these requirements makes the home compliant with HUD (Housing and Urban Development) relevant codes. Manufactured homes are transferred from the factory where they are built to a building site of your choosing. They can be delivered in one piece or multiple pieces that are joined together on-site.

What Types of Mortgage Loans Are Available?

There are two major loan types available for the purchase of manufactured homes.

  1. FHA Loan
  2. Conventional & Chattel Loan

These loans are generally for manufactured homes that will be installed on the land atop a permanent foundation that you own or will soon own. Some loan types are determined based on whether you are buying a brand new manufactured home, or one that has been previously lived in. Often, companies that sell manufactured loans can facilitate a loan for you as well.

1. FHA Loans

With an FHA loan, the mortgage is insured by the FHA. The borrower pays for mortgage insurance which offers protection for the lender if the borrower defaults on their mortgage payments. FHA facilitated loans often have attractive interest rates and the FHA can be more flexible with their qualifications for the loan as well.

Other FHA Considerations

  • The credit score is a deciding factor in the size of the down payment required for the loan.
    For Example
    A borrower with a credit score of 620 or higher might only need to have a 3.5% down payment, while a person with a credit score of 600 may need a 10% down payment. As with banks, a credit score that is too low will make a borrower ineligible for an FHA loan.
  • Family co-signers can be used to make the initial down payment, and there are grants available to help people make their down payment.
  • Like other home loans, FHA facilitated loans allow sellers, builders, and other lenders to help pay some of the closing costs, such as appraisal costs, title expenses, or a full credit report.
  • The loans don't come directly from the FHA. The FHA is a mortgage insurance provider, but they have a list of FHA approved lenders who will assist borrowers approved by the FHA; these lenders offer varying interest rates from one another.

2. Conventional & Chattel Loans

A conventional loan is secured by a lien on the home. Some conventional loans can be difficult to attain for manufactured home buyers because of the question about whether the loan is strictly for the home, or whether the loan is really for the land.

In other words, if the borrower defaults on payments, will the lender have to come and literally take the home away with no claim on the land, or will the land and the home be turned over to the bank?

Chattel loans refer to a legal term regarding personal property, not real property. A site built home is real property; a manufactured home is personal property.

Advantages to Manufactured Home Ownership

  • Affordability. The quality and floorplan are attractive, as these homes, once attached to a foundation can last as long as any typical site built home.
  • Low down payments and low interest loans are available for qualifying buyers.
  • They are quickly put on site and move-in ready.

Disadvantages

  • There are concerns about the depreciation of value of these homes.
  • Many lenders often have higher interest rates for these loan types.
  • Credit score requirements can make FHA qualifications difficult for some buyers.

Desirable Due to Low Cost

It's important to take note that manufactured homes are not trailer homes or modular homes. For some, there can be difficulty in securing a loan for a manufactured home, but for countless others, the dream of home ownership is reachable thanks to this niche in the housing market. For those with fixed income, including retirees, this can be a more affordable way to live the American dream in comfort and security without the higher expenses of attaining and maintaining a typical home.


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