Mobile homes—or manufactured homes (read on for the difference)—are a much more affordable way to own your own place. Today’s models can often be as spacious and beautiful as a traditionally built house, often for a fraction of the price. The nice ones aren’t exactly cheap, however: According to the affordable housing research organization CFED, mobile homes cost an average of $45,600 for a single-wide or $86,700 for a double-wide. That’s not the kind of cash most people have lying around, which brings us to the obvious question: How do you get home loans for a mobile home?
The mortgage process isn’t exactly the same as for a traditional home. Here’s what you need to know.
Mobile vs. manufactured home: What’s the difference?
First things first: Technically, the term “mobile home” applies only to structures that were built before 1976. It’s a bit confusing, but stay with us. That year, the U.S. Department of Housing and Urban Development created a new set of codes for mobile homes to make them safer, and renamed them “manufactured homes.” So that’s the correct term, but it’s helpful to know that many people still confuse these two terms or use them interchangeably.
If you own the land under the home
To qualify for a conventional residential mortgage, “it has to be a manufactured home that is classed as ‘real property,’ meaning you have to buy the home and the land it sits on,” says Amy Bailey Oehler of PrimeLending. “It can’t be on wheels any more. When you buy it, they’ll bring it to you on wheels, but then you have to take the wheels off. It needs to be fixed to the land, and you have to own the land it’s on.”
So OK, you’ve found your dream manufactured home, its wheels are history, and it’s for sale along with the land under it. Now what?
According to Oehler, when it comes to financing, each lender has different requirements. One issue is the age of the home. If it’s older than 20 years, it will be harder to find financing. Also, sometimes square-footage requirements are imposed—for example, some lenders might be more apt to give a loan for a double-wide but not a single. Do your research on the home loans.
So when you begin the mortgage pre-qualification process, let your lender or mortgage broker know upfront that you’re considering manufactured housing. That way, you can make sure you aren’t barking up the wrong lending tree, so to speak, because many can’t or won’t do loans on manufactured housing at all.
Or, just go directly to a lender that specializes in manufactured housing, like Cascade Loans, which has a proven track record of giving out loans for manufactured homes since 1999.
If you own the home but lease the land
What if you’re talking about buying something that’s still mobile, like a trailer, RV, or even some tiny homes?
“That would fall under the category of an auto loan,” says Oehler.
Another popular mortgage option for manufactured houses is a “chattel mortgage.” These are useful if you’re looking at a “space rent,” or a manufactured home in a complex where you own the home but lease the land it sits on.
A chattel loan is not structured exactly like a traditional mortgage. Loan terms are shorter, maxing out at 20 years. It doesn’t require a 20% down payment, but interest rates aren’t “fixed” in exactly the same way. Certain lenders can give you a loan with as little as 5% down, but the interest rate rises after the first five years and gets higher the longer you have it.
FHA loans for mobile homes
The Federal Housing Administration insures mortgages on manufactured homes, making many lenders more willing to finance them. Here is a search tool to help you find FHA-approved lenders.
The administration doesn’t actually give you a loan; it just provides insurance to your lender that you’ll pay it back. You still have to find your own approved lender and negotiate your terms.
Plus, you’ll be required to pay not just one, but two types of mortgage insurance (one for the lender and another for the FHA) throughout the life of the loan. That amounts to about 1.35% of your loan amount, which will make your payments higher. The good news, though, is that under Title 1, the FHA insures three types of loans for manufactured homes:
- The home and the land: If you’re buying both, you can get the conventional mortgage we talked about previously, but having FHA insurance will make banks more willing to give you the loan. The maximum covered for this type of purchase is $94,904.
- Just the home, not the land: The FHA will cover a non-chattel loan in a space rent situation, if you can find a lender willing to make it. The maximum allowed for this purchase is $69,687.
- Just the land, not the home: If you already own a home but want a permanent spot to put it, the FHA will cover up to $23,226 of that loan.
In addition to qualifying for financing and meeting its specific standards, to meet FHA requirements your home must:
- Meet the Model Manufactured Home Installation Standards
- Be your primary residence
- Carry a one-year manufacturer’s warranty if the unit is new
- Be installed on a home site that meets established local standards for site suitability and has adequate water supply and sewage disposal facilities available
- If it’s a space rent, you must have at least a three-year lease that gives 180 days’ written notice if the lease is to be terminated.
You’ll need an IBTS letter, too
Unlike most home loans, another unusual thing about getting a loan for a manufactured home is the requirement of an IBTS letter or HUD Certification Label in addition to the appraisal. IBTS, or the Institute for Building Technology and Safety, is a body that works with HUD to make sure that your manufactured home is up to code and habitable. You will need this letter or label for lots of things in addition to getting financing, including getting homeowner insurance, the appraisal, zoning inspections, and if you refinance.
The process for obtaining the letter is straightforward: Just contact IBTS with certain specs and serial numbers, and it’ll provide a letter.
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