How To Finance A Mobile Or Manufactured Home

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With the median price of homes exceeding $400,000, mobile homes, also called manufactured homes, can be more cost-effective while offering more flexibility. According to the Manufacturing Housing Institute, the average manufactured home sells for about $127,250.

That said, financing the purchase of a mobile or manufactured home may require more digging than purchasing a traditional home. That’s because most mortgage lenders don’t offer financing for these types of properties due to their lower cost and depreciating value. Still, there are some options available.

You’ll often hear the terms mobile, manufactured and modular used interchangeably when discussing these similar types of homes. While they are related, there are some important differences between these homes.

A mobile home is built at a factory before it’s brought to a property for setup. It may or may not use metal tie-downs in place of a traditional foundation. However, this explanation can apply to manufactured homes as well.

Whether a house is considered a mobile home depends on when it was made. Homes built in a factory before June 15, 1976, are known as mobile homes. This is when the U.S. Department of Housing and Urban Development (HUD) enacted the National Manufactured Housing Construction and Safety Standards Act.

After that date, new safety standards went into effect, leading to a new designation for these homes.

Typical sizes: Single wide (between 500 to 1,200 square feet) or double wide (between 1,000 to 2,000 square feet).

Best for: Someone purchasing a pre-existing mobile home and looking for a lower price range than a new manufactured home.

Like mobile homes, manufactured homes are built in a factory. They can be set up at their permanent location on blocks, metal piers or a permanent foundation. Unlike mobile homes, manufactured homes are not intended to be moved once they’re set up.

According to the Housing Act of 1980, factory-built homes constructed on or after June 15, 1976, are manufactured homes. HUD highly regulates the construction of these homes under the Manufactured Home Construction and Safety Standards (HUD Code).

Additionally, these types of homes must meet local building standards for the communities where they will be located. Companies that construct manufactured homes must get their designs approved by a HUD-approved Design Approval Primary Inspection Agency, which makes sure the plans are safe for consumers and comply with the law.

Typical sizes: Single wide (between 500 to 1,300 square feet) or double wide (between 1,000 to 2,300 square feet).

Best for: Those looking for a new home with little to no setup or building required on site.

Like mobile and manufactured homes, modular homes are built in a factory and shipped to the land where they will be set up. However, modular homes are more similar to traditional homes. They often include crawlspaces and basements and use a traditional foundation.

Modular homes can also be delivered in two or more modules that are put together on-site in the desired arrangement. This feature is where they get their modular name. A local contractor typically manages the process of joining these multiple pieces together to complete the home’s construction.

Modular homes must be constructed to the same state, local or regional building codes as site-built homes.

Typical size: Between 1,000 and 2,500 square feet.

Best for: Those looking for a traditional style home with customizable features at a lower price tag.

Bankrate’s take: Before you shop, understand the difference between a mobile, modular and manufactured home, so you can choose the option that makes the most sense for you.

Once you decide on your mobile home’s features and where to put it, it’s time to figure out how to pay for it. There are a few options to consider when financing a mobile home.

HUD offers mobile home loans through the Federal Housing Administration loan program. This includes Title I and Title II loans.

A Title I manufactured home loan can be used in several ways, including to finance the purchase of a new or used manufactured home, refinance a manufactured home purchase, to buy the developed lot on which to locate this type of home, and for a combination purchase of both the lot and the home itself. These funds can also be used to alter, repair or improve a manufactured home.

Lenders can offer Title I mobile home loans even if the buyer doesn’t own or isn’t planning to purchase the land on which the manufactured home will stand. These homes will typically be placed in a manufactured home community or mobile home park. If the borrower doesn’t own (or isn’t buying) the land, they must provide a signed lease for a mobile home plot with an initial term of at least three years.

The loan program has other requirements relating to the terms of the loan.

This loan program insures loans that borrowers can use to finance a qualifying manufactured home, along with land, as long as it meets the requirements.

For example, you can only use a Title II loan if you plan to live in the manufactured home as your primary residence — real estate investors need not apply. Other requirements for the home include:

Title II loans cannot be used for manufactured homes on leased land in manufactured home communities or mobile home parks. Down payments on a Title II loan can go as low as 3.5 percent, and terms can last as long as 30 years.

Some lenders offer Fannie Mae mortgages to borrowers who wish to finance a manufactured home through the MH Advantage program. To qualify, you need to satisfy a number of eligibility criteria, including installing the home with a driveway and a sidewalk that connects the driveway, carport or detached garage.

To qualify for this program, the home must also meet certain construction, architectural design and energy efficiency standards similar to site-built homes.

The loans come with 30-year financing, and you may be able to secure them with a down payment as low as 3 percent. As an added benefit, interest rates on MH Advantage mortgages tend to be lower than those of most traditional loans for manufactured homes.

You may be able to obtain conventional financing for a manufactured home through the Freddie Mac Home Possible mortgage program.

Qualified borrowers may choose between fixed-rate mortgages (15, 20 and 30 years) and 7/6 or 10/6 adjustable-rate mortgages. You may be able to secure a loan with as little as 3 percent down and, in some cases, use gifted or grant money to help cover your down payment.

If you belong to the military community, you may qualify for a loan insured by the Department of Veterans Affairs. You can get a VA loan to buy a manufactured or modular home and put it on land you already own, buy both the home and land simultaneously, or refinance a home you plan to transport to land you own.

Lenders can offer up to 100 percent financing on manufactured home loans. You’ll need an affidavit of affixture, which proves the property is attached to land you own and meets certain local and VA requirements.

Loan terms can range from:

A chattel loan is a special type of personal property loan you can use to purchase a mobile home. These mobile home loans are designed for financing expensive vehicles like planes, boats, mobile homes or farm equipment, where the property guarantees the loan.

Even if you don’t own the land on which your home will be located, you might be able to secure financing with a chattel loan. As a result, they are a popular loan option for buyers who plan to rent a lot in a manufactured home community.

Some lenders offer chattel loans for manufactured home purchases that are insured by the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA) and the Rural Housing Service (RHS) through the U.S. Department of Agriculture. While you may be able to find lenders that offer both chattel loans and traditional mortgages, these two loan types differ in a few ways.

For starters, chattel loans typically have higher interest rates — 1.5 percentage points higher, on average, than traditional mortgage rates. That said, mortgage rates have been increasing over the past few months, so there may not be much of an interest rate difference as of now.

Chattel loans have shorter terms than traditional mortgages, which can translate to higher monthly payments but could also help you pay your debt off sooner. On the plus side, the closing process is usually faster and less restrictive with chattel loans than the closing process you would experience with a traditional mortgage.

Mobile homes are far cheaper than traditional homes, so you may be able to finance your purchase through a personal loan.

Because personal loans are flexible loans you can use for almost any purpose, they can serve as mobile home loans. However, personal loan interest rates tend to be higher than those of other types of loans, such as mortgages or auto loans. The trade-off is you don’t have to provide any collateral — which means you won’t lose your home if you default — and the application process tends to be shorter and involves less paperwork.

Another important advantage of personal loans over mortgages is they’re typically cheap or free to set up, says Steve Sexton, CEO of Sexton Advisory Group. “There’s no costly title, escrow or appraisal fees. And the lender has zero interest in or control over your home because the loan is not secured.”

Personal loan lenders usually offer maximum loans of $25,000 to $50,000, though some lenders will let you borrow $100,000 or more. If you see a lender offering a personal loan large enough for financing a mobile home, it might be a good way to borrow the money that you need.

When you compare mobile home financing options, consider the type of home you want to buy, how much money you need to borrow, when you plan to pay back your loan, and what type of interest rate you prefer.

If you’re wondering how to buy a mobile home and get the best financing, there are a few steps you should follow first.

Whenever you apply for any financing, a lender will consider your credit as part of your loan application. Clean credit histories and solid credit scores make securing loans easier and receiving better rates and terms from lenders.

If you find mistakes when you check your credit reports, you can dispute them with the appropriate credit bureau — Experian, TransUnion or Equifax.

Why it’s important: The better your credit score, the lower your interest rate will likely be. This can save you thousands of dollars over the course of the loan.

When you’re financing a mobile home, the stability of the asset being financed is important, Sexton says. If you own the land and your mobile home has had the axle and wheels removed, it’s less likely that you’ll pick up and move. This may make more lending institutions open to financing a mobile home.

Why it’s important: If you plan to rent a plot for your home, you’ll be eligible for fewer loans than if you plan to purchase the land the home will be placed on.

The type of home you’re looking for will affect the loans you may be eligible to receive. For example, if you want to buy a double-wide manufactured home that costs $100,000 or more, you won’t be eligible for an FHA loan. In addition, older mobile homes may not qualify for financing at all.

Why it’s important: All lenders have specific lending criteria based on the type and value of your home.

Choose the type of loan (FHA, conventional, chattel or personal) you’ll use and compare different lenders’ offerings.

Mobile home interest rates and manufactured home loan rates and fees can vary widely between lenders, so take the time to shop around. Try to find a loan that has low fees and interest rates so you can spend as little as possible over the life of the loan.

Why it’s important: Doing your research and shopping around can save you thousands of dollars over the life of the loan and help you secure more favorable loan terms. In addition, searching for financing options early will help ensure a loan is available to help you make the purchase.

You’ll want to ensure that your application is as complete and transparent as possible. In addition, many lenders require a down payment, so be prepared to make a payment when you complete your application.

Why it’s important: Being able to submit a complete application will improve your odds of qualifying and keep the process running smoothly.

Takeaway: Make sure you’re well-prepared to finance a mobile or manufactured home. Doing so makes you more likely to secure the best rate and most favorable terms while expediting the process.

As with any loan, mobile home interest rates and manufactured home loan rates will vary based on several factors. Your credit score, down payment amount and type of home and whether you’re buying the land will affect the amount you pay.

To qualify for low mobile home interest rates, make sure your credit score is at least 700. You’ll need a score of 750 or higher to qualify for the best rates available.

Now that you know how to buy a mobile home or manufactured home, you’ll want to consider a few factors to make sure you select the best option, including location, size and whether to buy a new or used property.

Like traditional homes, mobile homes and manufactured homes are all about location. Before you think about anything else, figure out where you will install your mobile home. The location you choose will have a big impact on the rest of the process.

“Purchasing a mobile home and finding the right location is just like buying a home,” Sexton says. “A good neighborhood is important.”

One option is to install the home on a piece of land you already own. You may also opt to buy the land where your mobile home will be located. Just make sure zoning regulations allow for the installation of mobile homes on the lot you own or wish to purchase. Also, confirm that the lot is suitable for mobile homes and that the local utilities are equipped to connect a mobile home.

Another option you can consider is renting a plot of land in a mobile home community. This requires less money upfront but adds a monthly rent bill for the lot to your housing costs. Check with the manager of the community for restrictions on home features and size and to find available plots.

Mobile homes and manufactured homes come in various sizes, so you’ll need to decide in advance what size home you want. Larger homes are more expensive and require larger lots. As a result, you may need to borrow more if you want a larger home.

Mobile homes are usually classified by their width. You may see the terms single-wide or single unit and double-wide or double unit used. Single-wide homes are slightly under 15 feet wide and double-wide homes are double that width. Both are usually about 70 feet long.

“Many towns don’t allow single-wide mobile homes in their town or city limits,” Sexton says. “Make sure you research the rules that might apply to your situation.”

Unlike traditional real estate, mobile and manufactured homes tend to lose value over time. That means you can get a discount if you buy a used mobile home. The trade-off is that used mobile homes will often have signs of age unless they’ve been maintained very well.

You’ll also want to do upfront research about the site where you plan to place the mobile home. Some locations won’t allow the placement of homes produced before a specific date, limiting your options.

With an older mobile home purchase, you will likely also need to employ someone with knowledge and inspection skills to ensure you buy a good home.

Like any other type of home, ownership has long-term costs. When you purchase a mobile or manufactured home, one of the expenses to consider is the cost of mobile home insurance.

Similar to standard homeowners insurance, this type of policy offers you protection if your home is damaged or requires repairs. Often policies will cover the dwelling itself as well as your personal belongings if items were damaged or stolen. You may also obtain policies that include liability coverage, which protects you if someone is injured on your property and you are held liable.

Standard mobile home insurance does not typically include or may require an add-on to cover hurricanes, earthquakes and flood events.

Like traditional homes, the cost of mobile home insurance policies varies based on your coverage level.

Mobile and manufactured homes can be much more affordable than a traditional site-built home. But if you plan to purchase one, research to find out what financing options are available and understand the eligibility requirements. You’ll also want to ensure the home is not too old to qualify for a loan or mortgage and that you have a suitable location.

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How To Finance A Mobile Or Manufactured Home | Bankrate