Mobile Home Loans
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What You Should Know
- Mobile home loans are intended to finance mobile or manufactured homes that are not considered real property.
- A borrower has multiple options to finance their mobile home such as personal loans, chattel loans and FHA Title 1 loans.
- Mobile home loans tend to have a higher interest rate because they are considered riskier than mortgages for real estate.
- Some manufactured homes may be considered a real property, which means that they are eligible for conventional loans.
What Is a Mobile Home Loan?
Mobile home loans are issued specifically to finance a purchase of a mobile or a manufactured home. Because these types of homes can be moved, most owners of mobile homes often do not own the land where they park their homes. Because they do not own the land, mobile homes are considered personal property rather than real estate property.
Getting a mortgage on a mobile or manufactured home is not difficult, yet it has a process that differs from conventional mortgages. Some lenders offer conforming mortgages for mobile homes, which are very similar to the conventional mortgage loans for real estate. Even some government backed mortgage programs offer mortgage solutions for mobile homes.
| Is a Mobile Home a Real Property or a Personal Property? | |
|---|---|
| Real Property | Personal Property |
| Owner of a Mobile Home Owns the Land | Mobile Home is Registered With Department of Motor Vehicles (DMV) |
| Mobile Home Is Registered on the Land It Sits | Mobile Home Has a License Plate |
| Owner of Mobile Home Does Not Own the Land | |
Requirements For a Mobile Home Financing
Getting a mortgage loan for a mobile home is not difficult, but a borrower and their home have to meet certain criteria to qualify for a mobile home loan. Before getting into the requirements for a mobile home loan, the borrower has to understand what is considered a mobile home.
- Manufactured homes are often considered mobile homes or personal property rather than real estate property.
- If a mobile home has wheels or has a valid license plate, the property is considered a vehicle rather than a property.
- Mobile property must meet strict criteria regarding its age and conditions. These criteria vary by state.
To qualify for a mobile home mortgage through a conventional mortgage or a government-backed mortgage, a mobile home must be at least 400 square feet, on an approved permanent foundation, and taxed as real property. On the other hand, if a mobile home has a license plate or has wheels, then the home is considered a vehicle or a personal property that cannot be financed using a conventional mortgage. In this case, a borrower may finance it using a mobile home loan for personal property, which requires a minimum down payment of 5%. Mobile homes and manufactured homes tend to depreciate, unlike traditional real estate that tends to increase in value over time. Because of that, mobile home loans tend to have strict requirements regarding the age and condition of the property.
Mobile Home Loan Programs
If a mobile home does not meet the requirements to qualify for real estate mortgage loans, the borrower has to use other programs that are specifically tailored to personal property mobile homes. Some options are available for this type of mobile or manufactured homes.
Personal Loans
The easiest way to obtain financing for a mobile property that is not considered real estate is through a personal loan. The important aspect of a personal loan is that it is not given out against the property but rather for personal use. In this case, the lender will look at the financial position of the borrower rather than the home itself. This means that the property the borrower intends to purchase does not have to comply with any requirements.
On the other hand, this option may not be available for people who have a poor credit history or high debt-to-income ratio. Since the borrower gets a personal loan, the lender does not necessarily look at what the borrower is buying with the loan. A lender may have a lower risk tolerance for this type of loan, so they may decline the request if they believe the borrower may default on this loan. It is possible to increase the chances to get approved by pledging collateral to the loan.
Personal loans also usually have a higher interest rate than a mortgage loan. If the borrower does not need to finance a property urgently and instead would like to get a less expensive mortgage, the borrower may be better off considering other options before proceeding with a personal loan.
Chattel Loans
Chattel loans are tailored to provide financing for personal property mobile homes. The loan is secured by the property purchased, also known as chattel. Chattel loans tend to have a shorter-term and higher interest rate than a mortgage. Unlike a conventional mortgage, a chattel loan is secured with a movable property that tends to depreciate over time. Additionally, regular mortgages do not imply that the lender owns a property while chattel loans imply that the lender owns the property until the loan is paid off.
Chattel loans have their restrictions to qualify. It is unlikely that a borrower can get approved for a chattel loan without buying a home site. A home site for a movable property is usually located in mobile home communities. A lender will also require at least a 5% down payment on the loan. Chattel loans tend to have a lower interest rate than personal loans because it is secured with movable property. Even though the interest rate is lower than for a personal loan, chattel loans are still more expensive than a mortgage. Given a higher interest rate and a shorter lifetime of the loan, the borrower can expect higher monthly payments than that of a mortgage.
FHA Title 1 Program
This program is specifically designed for mobile and manufactured homes that are not classified as real estate. The Federal Housing Administration backs mortgage loans with their FHA Title 1 program. This program is available for borrowers who can put a down payment of at least 5% of the loan amount and whose home is reasonably new. Usually, this type of loan is not offered by institutional lenders, so a borrower may have to look for a private mortgage lender to get the loan.
There is no set interest rate on this type of loan because it is negotiated between the lender and the borrower and depends on the financial situation of the borrower and the quality of collateral used for the mortgage. Generally, a borrower should expect a higher interest rate on this type of loan because a loan on a mobile home is considered riskier since mobile homes tend to depreciate over time.
The FHA Title 1 program has certain limits that apply depending on the type of mobile home being used. These limits usually apply to a loan amount and the length of the mortgage. Otherwise, the FHA Title 1 program can be used for refinancing purposes as well as purchasing a new home.
| FHA Title 1 Loan Amount Limits | |
|---|---|
| Mobile & Manufactured Home | $69,678 |
| Mobile & Manufactured Home Lot | $23,226 |
| Mobile & Manufactured Home & Lot | $92,904 |
| FHA Title 1 Loan Term Limits | |
|---|---|
| Manufactured Home Lot | 15 Years |
| Single-Wide Manufactured Home And Lot | 20 Years |
| Multi-Wide Manufactured Home And Lot | 25 Years |
Manufactured Home Financing as Real Property
Some manufactured homes can be qualified as real property. This means that they can be financed using various mortgage options that are available for regular real estate properties. Even though conventional mortgage lenders may have their requirements that need to be met by a manufactured home, government-backed mortgages usually qualify manufactured home real property the same way as any other real estate. The following mortgages can be considered to finance manufactured home real property.
FHA Loans
FHA loans, just like the FHA Title 1 Program, are backed by the Federal Housing Administration. These loans are specifically designed for people who face hardships purchasing their first home. Qualifying requirements for FHA loans are much lower than for conventional loans. For example, the minimum credit score required to qualify is 500 with 10% down payments on the mortgage. Additionally, if a borrower has a credit score of 580 and above, they can qualify for a loan with a down payment of only 3.5%. FHA loans also require that the property be built after June 15th, 1976, and is not located in a flood zone.
VA Loans
VA loans are designed to provide affordable mortgages to veterans and servicemen. These loans are backed by the Department of Veteran Affairs, and they provide mortgages with 0% down payment. VA loans also allow buying manufactured properties that are considered real property. The property has to meet certain qualifications, and the total value of the loan must be higher than $144,000 to qualify for this loan. There are other qualifications a borrower must meet to be approved for a mortgage including a Debt-to-Income (DTI) ratio of less than 41%.
A borrower will likely have to pay a one-time VA funding fee that can range from 1.4% to 3.6%. A borrower is also required to have a credit score of at least 620 to qualify. Unlike other government-backed mortgages, VA loans do not require private mortgage insurance, so the monthly payments are often lower than for the mortgages that require private mortgage insurance.
USDA Loans
USDA loans provide funding for people looking to buy a property in rural areas. These loans are backed by the US Department of Agriculture and provide mortgages with 0% down payment. USDA loans are available for any property type including manufactured homes that are considered real property. It is important to know that USDA loans require a manufactured home to be brand new, which might not be a good fit for the borrowers who are planning to get a second-hand manufactured home.
To qualify, the borrower must meet certain income criteria as well as a minimum credit score of at least 640. To qualify, the borrower must have a household income of less than 115% of the median income in the area. Additionally, their DTI must ratio must be under 41%.
Freddie Mac Home Possible Loans
Home Possible loan offers first-time homebuyers to get a mortgage with a very low down payment. This program focuses on low to moderate-income households and offers affordable mortgages with as low as a 3% down payment. A borrower has to meet certain financial criteria to be eligible for this loan. Since the program focuses on low to moderate-income households, the income of a household must be lower or equal to 80% of the area’s median income. In addition to that, a borrower must have a minimum credit score of 620 to be eligible. A borrower may obtain a lower mortgage rate if their credit score is above 680. This mortgage requires private mortgage insurance while the Loan-to-Value (LTV) Ratio is over 80%. As soon as the LTV ratio is under 80%, private mortgage insurance is not required.
Freddie Mac allows financing manufactured homes as long as they comply with their criteria. These criteria include that a manufactured home is in compliance with HUD code requirements and is built later than July 15th, 1976. It is important to make sure that a borrower can finance a second-hand manufactured home because some homes may not be eligible due to the conditions of the property.
Fannie Mae HomeReady Loans
HomeReady is another program for first buyers that is not backed by the government. This program is intended to provide financing to low to moderate-income households with a down payment as low as 3%. To qualify for the mortgage, a borrower may include the income of another person living in the household to increase the chances to be approved for a mortgage. Fannie MaeHomeReady loans have very similar requirements to Freddie Mac Home Possible loans. HomeReady loans require a credit score of at least 620 to be eligible and 680 to have a lower mortgage rate. They also target households with no more than 80% of median income in the area. Just as with Freddie Mac, Fannie Mae requires private mortgage insurance for all loans that have an LTV ratio of 80% and above.
Fannie Mae approves HomeReady mortgage loans for manufactured homes that are at least 400 square feet and 12 feet wide. It also must comply with HUD code requirements. An important feature of HomeReady is that they allow financing manufactured homes that are no more than 10 years old as stated on their Data Plate.