The problem is that financing models designed for traditional single-family homes don’t always translate well to mobile and manufactured homes. It’s crucial to understand how these homes are financed, as well as the terms and details of the loan before you make a purchasing decision.
While they are much less expensive than their stick-built counterparts, manufactured homes often cost enough to require most people to finance the purchase. However, many states consider manufactured homes to be personal property rather than real estate, complicating the options for financing. Here are a few financing options for mobile and manufactured homes.
- FHA Loans
- Fannie Mae
- Freddie Mac
- VA Loans
- Chattel Loans
- Personal Loans
FHA Loans
FHA loans are a core financing option for first-time and low- to moderate-income homebuyers, and they can be used for many manufactured homes through the Title I program. (Note that the FHA does not issue mortgages on mobile homes built before June 15, 1976.) The FHA doesn’t issue these loans; private lenders (banks, credit unions and online lenders) extend loans that the FHA insures against default.
One major benefit of an FHA loan is the low down payment requirements, which are 5% for borrowers with credit scores above 500 and 10% for those with scores below 500. In certain cases, down payments can be as low as 3.5%. Loans can be used for the manufactured home, the lot the home will live on or both. Limits for loans on these purchases are $69,678, $23,226 and $92,904, respectively. FHA loans are fixed-rate only, and the repayment terms may span up to 20 years for single-family manufactured homes.
There are a few other stipulations for this type of financing. Like other FHA loans, borrowers must intend to occupy the home as a primary residence and should have a debt-to-income (DTI) ratio of no more than 43% (or 45% if the home is Energy Star compliant). Buyers must also pay a private mortgage insurance premium each month (which is no more than 1% of the principal balance). Lenders can also charge the homebuyer an upfront mortgage insurance premium of no more than 2.25% of the loan amount.
Despite some of the fees and regulations that come with FHA loans, they can be an affordable financing option for lower-income buyers who might have a hard time coming up with a down payment.
Fannie Mae
Fannie Mae is a government-sponsored enterprise (GSE) that buys mortgages for manufactured and other homes. While this entity doesn’t issue loans directly, the mortgages created by private lenders must conform to Fannie Mae’s regulations. Most large mortgage lenders offer this type of conforming loan, often calling it a “conventional mortgage.” You can ask your mortgage lender about this specific type of loan, but in many cases, they’ll direct you to them without needing to ask.
Fannie Mae mortgages can only be used in states where manufactured homes are considered real estate, but they can be used for primary residences, second homes and cash-out refinances.
Borrowers must have a credit score of 620 or higher to qualify. For primary residences, borrowers must put down a minimum of 5% for a fixed-rate mortgage (10% for an adjustable rate). Loans can be for up to 20 years.
The Fannie Mae MH Advantage program offers even more incentives than its standard program, including a 3% down payment minimum, low interest rates, price adjustments and cancellable mortgage insurance once the borrower reaches 20% equity. In exchange for these favorable terms, manufactured homes must meet a more stringent set of requirements, which include owning the land you put the home on and purchasing a home with an MH Advantage sticker (which designates that the design has been approved for this kind of financing). The home must also be multi-width (i.e., wider than a single-wide).
The MH Advantage program is ideal for homes and lots that are similar to site-built homes. In contrast, Fannie Mae’s standard mortgages can be suited to a broader range of manufactured homes, albeit without several advantages.
Freddie Mac
Freddie Mac is another GSE that has similar requirements to Fannie Mae’s, with a few key differences. Manufactured homes on leased land are ineligible for Freddie Mac’s mortgage program (unless some very specific criteria are met), as are homes that have previously been installed elsewhere.
As with Fannie Mae mortgages, down payments are generally 5%, and these loans can be fixed-rate or adjustable-rate mortgages. In addition to the typical mortgage fees, Freddie Mac loans have an added 1% delivery fee. There is no published credit score minimum for Freddie Mac’s manufactured home mortgages.
Like Fannie Mae, Freddie Mac does not offer loans directly. Instead, you’ll get them from a traditional mortgage lender, often under the banner of “conventional mortgage.” Smaller community banks and credit unions tend to offer conventional loans through Freddie Mac, rather than Fannie Mae, which typically works with large commercial banks.
VA Loans
The Department of Veterans Affairs backs VA loans, which are only available to qualifying service members or veterans of the U.S. Armed Forces or their surviving spouses. VA loans offer many advantages, including no down payment requirement, low interest rates, fewer closing costs and no private mortgage insurance requirement.
VA loans typically require that the manufactured home be placed on land the buyer owns, but the land purchase can be wrapped into the mortgage for the home. Borrowers must also pay the VA funding fee which is between 1% and 3.3%, depending on the terms of your loan.
If you’re in or have been in the military, a VA loan may be a fantastic option for financing a manufactured home, provided that you already own or are purchasing the land where the home will reside.
Chattel Loans
Chattel loans are typically used for large or expensive pieces of personal property that require financing (like boats, private jets or tractors). Chattel loans are a secured financing option in states that do not consider manufactured homes to be real estate. The financed purchase (the mobile home, in this case) backs the loan and can be repossessed in the case of default. Most chattel loans carry high interest that is 3-4% higher than you’d get with a typical mortgage, which could eat into the affordability of a mobile home as a housing option.
Also, as the name suggests, chattel loans are for chattel only — not the land they sit on. So, if you want to buy land with your mobile home, you may need separate financing for that portion of the purchase. On the plus side, chattel loans have lower processing fees than traditional mortgages. However, they generally have shorter repayment periods and lower maximum loan amounts, which could present a challenge depending on your financial situation.
Buyers interested in true mobile homes (built before 1976) or other manufactured homes that do not qualify for conventional mortgages may be able to acquire them through a chattel loan.
Personal Loans
One of the chief difficulties with financing a manufactured home is that some states consider them personal property rather than real estate. This effectively eliminates the option to get a mortgage to buy a manufactured home. However, many people get around this issue by taking out personal loans instead of mortgages.
One advantage of personal loans is that the home does not secure them, so even if you get behind on payments, the lender cannot foreclose on your home. Another positive for personal loans is that you can skip many of the fees associated with mortgages. Your personal loan will likely have an origination fee, but it won’t require an appraisal, inspection or other fees that a traditional mortgage does. Approval and disbursem*nt of funds often happen much faster for personal loans than mortgages.
On the other hand, the interest rates on personal loans are typically higher than those of mortgages. Banks often have limits of around $50,000 for personal loans, so finding a lender that will cover the majority or all of the cost of your manufactured home (and the lot, if needed) may be difficult.
If you can find a great bargain on a manufactured home and your state doesn’t consider it to be real estate, a personal loan may be an option to close the deal.
>> Related: Learn more about requirements for a loan
The process of getting a mortgage or other loan for a factory-built home is much the same as a site-built one. Here are the basic steps to follow.
- Assess Your Financial Situation: Your credit score, income and savings all play a role in determining the type of loans you qualify for. Optimizing your finances will give you the best chance of approval and help you get a favorable interest rate.
- Research Lenders and Loan Types: Once you locate a manufactured home you’d like to purchase, start shopping around for lenders. Certain homes will only be eligible for certain loans, so finding the house first may eliminate a few lenders from your shortlist. Compare the different terms, interest rates and other requirements of each type of loan. Look for customer reviews to ensure the lenders you consider have a trustworthy reputation.
- Seek Prequalifications: Getting prequalified with multiple lenders is advantageous because they will compete for your business, and you can ask each to meet or beat the terms offered by the other.
- Review Loan Offers: When you’ve collected multiple loan offers, compare the interest rates, terms and fees to determine which one comes out ahead. Calculate the total cost of the loan over time by adding up all the closing costs, private mortgage insurance (if applicable), interest and fees.
- Submit Loan Application: Once you’ve selected your loan, submit a final loan application with all the documents your lender requires. Be prepared to pay for any closing costs and/or down payment expenses that aren’t rolled into the loan.
>> Related: Learn more about documents required for a loan
Mobile Home vs. Manufactured Home
Colloquially, the terms “mobile home” and “manufactured home” are used interchangeably, but this trend is misleading, as there are critical differences between the two.
The phenomenon of mobile homes grew out of the post-WWII travel trailer movement. Trailers grew larger, began offering more amenities and started to resemble more traditional homes. On June 15, 1976, the U.S. Department of Housing and Urban Development (HUD) began regulating the manufacture of homes to ensure they met safety codes.
True mobile homes are those built prior to the 1976 regulations. Though still used in everyday speech, the term “mobile home” has become somewhat obsolete; most factory-built homes nowadays aren’t meant to be moved after they’ve been placed.
Since 1976, pre-made homes have been referred to as manufactured homes. Most of the time, they are secured to permanent foundations. New manufactured homes are usually sold through a dealership. They’re manufactured in a factory on a steel chassis and hauled (mostly or entirely intact) to the site-built foundation to which they’re attached.
Another category of pre-built homes is modular homes. Modular homes look similar to manufactured homes, but there are a few distinguishing features between the two. For one, modular homes are fabricated in modules and then assembled at the construction site, whereas manufactured homes are typically assembled in a factory. Modular homes comply with the same requirements as stick-built homes and also use wooden frames rather than the metal ones used in manufactured homes.
Here are some specific considerations to pay attention to when you finance a manufactured home.
Interest Rates and Term
Financing for manufactured homes is generally subject to higher interest rates and shorter loan terms than site-built ones, particularly when personal or chattel loans are used. These costs and timelines can drive up an otherwise affordable housing payment. It’s also imperative to know if you’re getting a fixed or an adjustable-rate mortgage (ARM). Manufactured homes are difficult to refinance, so use caution with ARMs.
Down Payments Requirements
The amount you’ll need for a down payment will depend on your credit score and loan type, but be prepared to pay at least 5% down for most loans — possibly less for an FHA or VA loan.
Saving for a down payment can be challenging. Opening a separate savings account dedicated to that purpose and making automatic contributions to it each paycheck can speed up the process.
Location and Land Ownership
One consideration manufactured homeowners must pay attention to is the land beneath their home. With a manufactured home, you have the option to put it on land you own or on leased land. Whether the home is affixed to owned or leased land can determine the types of financing you’re eligible for. The ownership status of the land may also influence the terms of a future sale of the property, so keep the long game in mind when making this crucial decision.
Manufactured homes are an often-overlooked source of unsubsidized, affordable housing. That said, financing these purchases can get tricky and sometimes expensive. To ensure your manufactured home fits within your budget, consider true mortgage options (like FHA, Fannie Mae or Freddie Mac) in addition to personal or chattel loans.
While a manufactured home tends to be less expensive than its site-built counterparts, it’s still a large purchase to finance. Shop multiple lenders and compare them carefully to get the best deal on your financing option.
Editor’s Note: Before making significant financial decisions, consider reviewing your options with someoneyou trust, such as a financial adviser, credit counselor or financial professional, since every person’s situation and needs are different.
