Can You Get a Mortgage for a Manufactured Home?
As the U.S. continues to face a housing supply shortage, homeownership is becoming less affordable for many people. Tightened inventory contributes to higher prices, which squeezes many would-be homebuyers out of the house hunt.
Some borrowers might consider a more affordable manufactured home — the average sales price of a new manufactured home in May was about $81,000. Compare that with $320,200 for a new site-built home or $264,800 for an existing site-built home.
Now for the bad news: Many manufactured homes are financed through what are known as “chattel” loans, which have higher interest rates than traditional mortgages, according to a report by the Housing Assistance Council. A traditional site-built home is considered real property, whereas a manufactured home may be considered personal property, or chattel, unless the home is fixed to the land.
Luckily for manufactured homebuyers, the Federal Housing Administration (FHA) has options regardless of whether you own your land. We break down the different definitions of manufactured housing and give you financing options, no matter what your circumstances may be.
Manufactured, mobile, modular: What’s the difference?
Today’s manufactured homes meet Manufactured Home Construction and Safety Standards, which are enforced by the U.S. Department of Housing and Urban Development (HUD). They are home to about 22 million people living in the U.S.
Mobile homes: Manufactured homes built before June 15, 1976, are still referred to as mobile homes.
Manufactured homes: They shouldn’t be confused with a modular home. Manufactured homes are constructed on a chassis. Modular homes are required to meet the same building requirements as homes constructed on site.
Modular homes: A key difference between modular and manufactured homes is that modular homes tend to hold their value better. It’s also easier to obtain a conventional mortgage for a modular home.
If you are considering buying a manufactured or modular home, traditional mortgage loans are available, but financing options may differ from traditional home lending for manufactured housing. Knowing available loan options before looking for a home can help you decide what choice is right for you.
Financing a manufactured home
The FHA offers loans for those who own land and for those who plan to lease the place where the manufactured home will be located. The FHA does not directly loan money to borrowers purchasing manufactured homes. Instead, loans are offered through approved lenders.
FHA loans. If you own the land where your manufactured home will be placed, you may be eligible for traditional FHA financing. The manufactured home must be built on or after June 15, 1976, and have a HUD label to certify that. It also has to be at least 400 square feet. The home must meet a few additional requirements:
- The home has to be on a permanent chassis.
- The manufactured home must have a real estate classification.
- The home’s design must be for a one-family dwelling.
- Once the home is transferred to the site, it cannot be moved again.
FHA Title I loans. FHA Title 1 loans are available to borrowers who do not purchase or own the land on which their manufactured home is placed. Here are a few rules to remember about FHA Title 1 loans, including:
- When the land is leased, the initial lease term must be at least three years.
- The limit for a manufactured home loan amount is $69,678, the lot financing limit is $23,226, and both the home and lot loan maximum is $92,904.
- The loans also have maximum terms: 20 years for a loan on a manufactured home or on a single-section manufactured home and lot; 15 years for a manufactured home lot loan; or 25 years for a loan on a multisection manufactured home and lot.
Fannie Mae. Fannie Mae offers the MH Advantage mortgage for those who plan to own their manufactured homes as well as the land. This loan offers potential borrowers a down payment as low as 3%, but also has some restrictions, including:
- Your home must have an MH Advantage sticker that guarantees it has many of the same characteristics as a site-built home.
- Your home must be at least 12 feet wide and have a minimum of 600 square feet.
- Your home must be attached to a permanent foundation.
Freddie Mac. Like Fannie Mae, Freddie Mac is another government-supported enterprise. It also offers loan programs for manufactured homes. Freddie Mac loans require that borrowers own the land, but they may be used for second homes and it may be possible to tie in with other Freddie Mac programs, including the Home Possible mortgage. Other requirements include:
- Borrowers must make a down payment of at least 5%.
- Homes built before June 1976 are ineligible, as are investment properties.
- Loans offer a wide range of terms: fixed-rate mortgages and 7/1 and 10/1 adjustable-rate mortgages.
Mark Kraft is a regional mortgage manager at U.S. Bank, which offers financing for manufactured homes through the Freddie Mac and Fannie Mae programs. To qualify for a manufactured home loan, Kraft said the borrower would need to meet “the same criteria that we have for any other mortgage.” The borrower needs to provide specific documentation that includes the HUD label, make and model, serial number and VIN, according to Kraft. It’s important to remember that states have their own documentation requirements, according to Kraft.
USDA loans. The U.S. Department of Agriculture also has a loan program for manufactured homes, but it comes with more strict regulations, including:
- Homes have to be less than a year old. The home’s inspection sticker will be compared to the date of sale.
- The home must be 400 square feet or larger.
- The home must have a permanent foundation.
- A certification must be obtained to show the foundation meets HUD requirements.
- The manufactured home must be classified as real estate.
Like some of the other programs we described, this loan can only be used for a manufactured home with a permanent foundation. Also, both the land and home are required to be financed in the mortgage.
VA loans. These are available for manufactured homes that will be attached to a permanent foundation on land that is already owned by the borrower or can be financed in the Department of Veterans Affairs (VA) loan. VA loans have many restrictions, which include:
- A review of the potential borrower’s employment history, credit history, assets and income.
- Maximum loan terms of 20 years and 23 days for a single-wide manufactured home and 23 years and 32 days for a double-wide model.
- A manufactured house and lot have a maximum loan term of 25 years and 32 days.
- The maximum loan borrowing term for land with an established manufactured home that is already owned by the borrower is 15 years and 32 days.
- The maximum loan amount is 95% of the purchased value — in other words, 100% of the cost of the home and the property will not be covered in the total loan amount.
- The VA charges a 1% funding fee.
Financing a manufactured home through the dealer
One of the most common ways to finance a manufactured home is through the manufactured home dealer. Loans are set up as a retail installment contract, which is an agreement between the borrower and the dealer that establishes a payment plan for the funds borrowed.
The Preserving Access to Manufactured Housing Act passed in the U.S. House of Representatives in December 2017. It has yet to be passed in the Senate, but if the act becomes law, it would change requirements to the Truth in Lending Act, making manufactured home retailers abide by the act. According to the Manufactured Housing Institute, the bill would make it easier for borrowers to gain access to financing options because it would keep loans affordable and follow consumer protections established in the Dodd-Frank Act.
For now, people shopping for manufactured home mortgages through a dealer should be aware of high interest rates and expensive loans. According to a 2014 Consumer Financial Protection Bureau report, many manufactured home loans had high interest rates, especially for low-income borrowers 55 and older.
Financing a manufactured home when you don’t own the land
If you do not own the land and either decide against or don’t qualify for an FHA loan, your manufactured home can be financed through a chattel loan. A chattel loan uses the manufactured home as collateral. Once the loan is paid in full, the home ownership returns to the borrower. Although chattel loans are common, they have also been found to have fewer consumer protections and higher interest rates.
Before applying for a manufactured home loan, HUD suggests speaking with a housing counseling agency. Be sure to ask your potential lender any questions that may arise during your manufactured loan search. With several financing options available, it is possible to own your own manufactured home.