Getting An FHA Manufactured Home Loan
Twenty-two million people live in manufactured (aka mobile) homes in the U.S., according to the Manufactured Housing Institute. With an average new home sales price of just $70,600, manufactured homes present an affordable alternative to site-built homes.
Even at that price, few buyers can afford to pay cash for a manufactured home, not to mention the land it sits on. As a result, most buyers need to finance the purchase of a manufactured home with or without land. But obtaining financing for a manufactured home presents some unique challenges.
First, there’s the question of whether the home is “real” property or personal property. 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 that land.
According to a 2014 report from the CFPB, only 14% of new manufactured homes are titled as real property, so chattel financing is the only option available. Chattel loans may come with higher interest rates than conventional mortgages. They may also have shorter terms, which impacts their affordability.
Next, there’s the issue of whether the borrower owns the land the manufactured home sits on. If the homeowner doesn’t own the land, they lease a lot within a manufactured home community or mobile home park. According to the CFPB report, about three-fifths of manufactured housing residents also own the land.
Fortunately for manufactured homebuyers, the Federal Housing Administration (FHA) has options whether you own or lease the land.
FHA real property loans for manufactured homes
When a buyer purchases or owns the land the manufactured home will sit on, the property may be eligible for the same FHA-backed financing available to buyers of site-built homes.
The home must meet the qualifications outlined in HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook. Those qualifications include:
- The manufactured home must be designed as a one-family dwelling.
- It must be at least 400 square feet.
- The home must have a HUD Certification Label affixed, or the buyer must obtain a letter of label verification issued on behalf of HUD, confirming the home was constructed on or after June 15, 1976, in compliance with the Federal Manufactured Home Construction and Safety Standards
- The home must be classified as real estate, even if it is not treated as real estate for purposes of state taxation.
- The home must be built and remain on a permanent chassis.
- The home must have been designed to use as a dwelling with a permanent foundation built in accordance with the Permanent Foundations Guide for Manufactured Housing
- The home can only be transferred once – from the manufacturer or dealer to the site – and never moved again.
That final requirement – that the home can only be transported once – is the reason these loans are available only to borrowers who also own the land on which their home is located. When the borrower leases the land, the community can be sold out from underneath its residents, forcing them to relocate the home. According to the National Consumer Law Center, only a few states require landowners to give residents advance notice of the sale and offer them an opportunity to purchase the community.
In addition to the above requirements, the borrower must intend to occupy the home as their principal residence. FHA loans are not available on investment properties.
If the property meets FHA loan guidelines, the buyer must also meet the following criteria.
Minimum credit score
One of the perks of FHA loans is their low down payments that make it easier for low- to moderate-income buyers and first-time homeowners get on the path to homeownership. Borrowers with credit scores of 580 and above can get an FHA loan with as little as 3.5% down. For credit scores between 500 and 579, the minimum down payment is 10%.
In addition to a down payment, buyers must have enough cash to cover closing costs. The type and amount of closing costs vary by lender but can run anywhere from 2% to 7% of the home’s purchase price.
However, FHA loans allow the seller to pay up to 6% of the home’s sales price toward closing costs.
FHA loans require borrowers to have enough cash reserves to cover at least one monthly mortgage payment after coming up with a down payment and closing costs.
Your debt-to-income ratio (DTI) is calculated by dividing your monthly debt payments by your gross monthly income. FHA guidelines look at two ratios:
- A housing ratio or front-end ratio, which considers your monthly mortgage payment and other monthly costs of homeownership, such as association fees, property taxes and insurance. FHA loans typically require a maximum front-end ratio of 31% of gross monthly income.
- A total debt ratio or back-end ratio, which takes into account all installment and revolving debts, such as credit card payments, student loans, car payments, etc. FHA loans typically require a maximum back-end ratio of 43% of gross monthly income.
The above are FHA guidelines, but individual lenders may have their own, stricter requirements, referred to as lender overlays. For instance, a lender may not work with borrowers with credit scores below 640 or require a lower DTI. Because these overlays vary by lenders, if you are turned down for an FHA loan by one bank, you may still be approved by others.
FHA Title I Loans
FHA Title I loans are available to borrowers who do not purchase or own the land on which their manufactured home is placed.
To qualify for an FHA mobile home loan, the initial lease term for the land must be at least three years and the lease must specify that the homeowner will receive at least 180 days’ notice if the lease will be terminated for any reason.
For any FHA manufactured home loan, the maximum loan amounts are:
- Manufactured home only: $69,678
- Manufactured home lot: $23,226
- Manufactured home and lot: $92,904
The loans also have maximum terms:
- 20 years for a loan on a manufactured home and or home plus a lot
- 15 years for a loan on a manufactured home lot
- 25 years for a loan on a multi-section manufactured home and lot
How to find an FHA lender
FHA loans are not funded or underwritten directly by the FHA, but by FHA-approved lenders. But not every FHA-approved lender provides loans for manufactured homes, and they may have their own requirements (overlays) that are stricter than FHA requirements.
You can find an FHA-approved lender using the Lender Search tool available at HUD’s website. The Manufactured Housing Institute also maintains a database of lenders who may be able to help with manufactured home financing. If you are buying the manufactured home new from a dealer, the dealer or retailer may be able to refer you to lenders in your area that specialize in manufactured home financing.
Keep in mind that interest rates and fees may vary by lender, even for the same type of loan, so it’s important to shop around.
Many borrowers struggle to find affordable financing for manufactured homes, so the FHA’s options for manufactured homes provide an affordable opportunity for homeownership. Whether you finance the purchase as real property or chattel, keep in mind that taking out a mortgage is likely one of the largest financial transactions you’ll make in your lifetime.
Before signing, carefully review the loan estimate and closing disclosure forms provided by the lender to ensure the loan amount, interest rate, estimated monthly payment and other terms of the loan match your understanding of the loan. If you have difficulty understanding the closing disclosure, ask for clarification from your lender, or check out the CFPB’s interactive tool explaining all parts of the closing disclosure and the details you should review.
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