Mobile & Manufactured Home Loan Guide
In any discussion about mobile home loans, it won’t be long before someone says, “It depends what you mean by …” The rules surrounding these loans can be easily misunderstood unless you have a clear grasp of what certain terms mean. So be patient while we whiz you through some definitions.
Once Upon a Time … Mobile Homes
Once upon a time, close to a century ago, someone looked at a car, looked at a horse-drawn wagon/caravan, and thought, “I could make a vacation trailer that could be hauled by that car.” Not that many years later, someone else looked at a vacation trailer and thought, “This is really comfortable. I’d like to live in one of these.” And the mobile home was invented.
As demand for wheeled trailers as homes increased, they grew in size and sophistication to the point when it was no longer practical to routinely haul them from place to place. They still had wheels, and they could be moved occasionally, but they were intended to remain on the same static site for long periods. To help increase their stability, “tie downs” were used to anchor them to the ground. If that describes the property you want to finance, and it was manufactured before June 15, 1976, it may be technically defined as a “mobile home.” If it has a vehicle identification number (VIN) and you pay fees to the DMV each year, that definition is even more certain.
Nobody’s sure how many of these older homes (sometimes called trailers, though that’s not a word many like anymore when applied to residences) are still in existence, but one expert guesstimates around 20 percent of all manufactured homes. If you want to buy one, you’ll probably find them for sale in parks and advertised on Craigslist and similar websites and publications.
Mobile Home Loans
It can often be difficult to finance this type of mobile home, especially if the one you want to buy is really old and in poor condition. That’s probably why so many of these are bought in cash sales.
However, you may be able to find a finance company or credit union that’s willing to help with a personal loan, which is also known as “chattel” loan. These are “unsecured” loans, meaning the lender can’t easily repossess your home if you fail to keep up payments – although it’s likely to come after you hard with collection agencies and court proceedings if you default.
Personal loans have some other advantages over “secured” mortgages: there’s generally less paperwork, a shorter lead time and smaller upfront costs in setting up the loan. One downside, is that you’ll likely need a pretty good credit score to get one, because the lender stands less chance of getting its money back if things go wrong.
And that’s the reason behind an even bigger downside: Personal loans pretty much always come with higher – typically, much higher – interest rates than mortgages, and that means you’re going to pay more for your home in the long run. Federal regulator the Consumer Financial Protection Bureau (CFPB) reckons interest rates on personal/chattel loans for mobile and manufactured (see below) homes may be between 50 and 500 basis points more expensive than equivalent mortgages. To translate that into figures, if you could get a mortgage at, say, 5 percent, you could expect to pay anything between 5.50 percent and 10 percent for a personal loan, depending on your credit score, other debt and other factors.
One exception to the difficulty of mortgaging mobile homes applies to residents of New Hampshire. There, all homes are regarded as real property, which means you can’t finance one with a personal loan. If you have trouble finding a mortgage lender there, try the New Hampshire Community Loan Fund. Elsewhere, state laws can make it more or less easy to find a mortgage.
Once Upon a Time … Manufactured Homes
Scroll forward to 1974, and mobile homes and trailer parks had gotten a bad reputation, though not one they always deserved. The then federal government stepped in and passed the National Manufactured Housing Construction and Safety Standards Act. This required the U.S. Department of Housing and Urban Development (HUD) to set standards for, in the words of that organization’s website, “the design and construction of manufactured homes to assure quality, durability, safety, and affordability.”
Although many people still use the terms “mobile home” and “manufactured home” interchangeably, that 1974 law makes the two very different. Since June 15, 1976, true manufactured homes come with HUD tags (red certification labels on the exterior of the structure) that prove compliance with its standards. Today, just about every home of this type comes with HUD tags.
Just to add to the confusion, advances in construction techniques created a third category called “modular homes,” and occasionally people muddle these with mobile and manufactured ones. But modular homes are nothing like those. They’re the same as ordinary site-built homes, and are constructed to the same state and local codes. The only difference is that they’re built in a factory in sections (modules), which are assembled on site. To owners, buyers, lenders and authorities, they’re the same as mainstream traditional homes.
Financing a Manufactured Home
When it comes to financing a HUD-tagged manufactured home, you can choose to designate your unit as personal property or real property, meaning you can take out a personal/chattel loan or a mortgage. But whichever you choose, you (or a future purchaser) can change your mind at any time, and switch either way. A CFPB report says an “estimated 65 percent of borrowers who own their land and who took out a loan to buy a manufactured home between 2001 and 2010 financed the purchase with a chattel loan.”
But that report goes on, “Chattel loans often have lower origination costs and may close more quickly than mortgages (loans secured by real property). Interest rates on chattel loans, however, may be between 50 and 500 basis points more expensive than real property loans.” In other words, the total cost you’re likely to pay for borrowing to finance your manufactured home is likely to be way higher if you opt for a personal loan. You may be able to drive down that cost even further if you get multiple mortgage quotes from different lenders.
Even so, you may well find salespeople who work for park owners or home retailers gently encouraging you – or even pressurizing you – to sign up for a personal loan. Be aware that they personally and their employers may benefit financially if you follow their advice. A personal loan may be right for you, but be sure to check out other ways of financing before committing yourself. That’s the message from the not-for-profit Corporation for Enterprise Development (CFED). Its Director of Affordable Homeownership Doug Ryan told LendingTree:
If you’re buying a manufactured home, you shouldn’t automatically follow the financing recommendations of salespeople employed by retailers or park owners. By all means consider those, but also explore other options, including mortgage loans, if available, which will usually work out much cheaper in the long run.
Even if you decide a personal loan is your best way forward, don’t assume the one offered by your salesperson is the best available. Get quotes from multiple personal loan lenders.
According to trade body the Manufactured Housing Institute, typical terms for manufactured home loans are:
- 10 – 20 percent down payment
- Terms 15-30 years, depending on credit profile, size of home and type of loan
- 10 – 20 percent down payment
- Terms up to 20 years, depending on credit profile, size of home and type of loan
Lenders May Worry About …
The rules surrounding manufactured and mobile home loans vary greatly from state to state, and the CFED provides further information on selected states.
But they can be just as diverse between lenders. Here are some that certain lenders apply. But, if these trip you up, seek out other sources of finance, including credit unions and personal loan and mortgage lenders:
- How wide is the unit? Single-width units are long and narrow; double width ones are normally twice as wide. Lenders less commonly want to finance single-width homes.
- How old is it? Many lenders won’t look at manufactured homes older than 15 years.
- Is it “original set?” Was it shipped from the factory to its present site or was it moved there from an earlier site? Many lenders insist on original set.
- Does the foundation comply with established standards? Some lenders may require a site inspection by an expert.
Things May Be Getting Better
In December 2016, the Federal Housing Finance Agency published a new rule that specifies how Fannie Mae and Freddie Mac should support manufactured housing. And that could ultimately add hugely to the availability of mortgages for manufactured homes everywhere. However, this is being written close to the 2017 presidential inauguration, so the new administration may yet change that policy. Still, for now, things look hopeful, as the CFED’s Doug Ryan observes:
There are changes on the horizon that will likely make it easier in the near future to get mortgages for manufactured homes nationwide. But, for now, buyers need to understand their local state’s law and seek out willing mortgage lenders, including local credit unions and other nonprofit lenders.