The type of property that you buy or refinance influences your mortgage rate. Condominiums, for example, are widely considered riskier than single-family homes. So are multifamily properties (like duplexes), co-ops, manufactured homes, high-rises, log homes, mixed-use developments, ranches and unusual buildings like geodesic domes. They have different ways of affecting what you pay for a mortgage. For example, Fannie Mae and Freddie Mac add surcharges for loans secured by manufactured homes, condos and multi-unit properties.
When it comes to unusual homes, there may not always be an extra charge. However, many mortgage lenders refuse to lend on log homes, co-ops, mixed-use complexes, domes or ranches, and when there is (a lot!) less competition for your mortgage business, the odds are that you’ll pay a higher rate.
Upward pressure on condominium rates comes from several sources. First, to be financed with a Fannie Mae, Freddie Mac, FHA or VA mortgage, a condominium complex must be on that the list of approved projects for that type of loan. To get on those lists, the condo must meet guidelines (for example, limits on how many units can be occupied by renters or delinquent on HOA dues), and the homeowners association must submit an application package for review. If your condo isn’t on any of these lists, finding a mortgage lender will be much harder. Again, less competition for your business means higher rates.
Second, even approved condos can cost more to finance. While government mortgage programs like FHA and VA don’t add extra fees for condos, Fannie Mae and Freddie Mac charge a .75 percent fee for condo loans above 75 percent loan-to-value. Jumbo mortgage lenders typically add .125 percent to the rate(as opposed to the fees) when they lend on condominiums.
And high-rises? Jumbo or non-conforming lenders frequently charge more to lend on high-rise condos, and some refuse to lend on them at all. However, high-rises on Fannie / Freddie, FHA or VA approved lists can be financed just like other condos.
Financing manufactured homes can also be challenging. One reason for this is the fact that, while traditional homes usually increase in value over time, manufactured housing usually depreciates over time. To be eligible for a mortgage, which is a loan on real property, the manufactured home must be legally classified as real property. That means it must be affixed to a permanent foundation and taxed as real estate. If you pay the taxes on your home to the DMV, you don’t have real property, and you’ll have to finance your home with a personal loan at a much higher rate.
Once you have established that your manufactured home is real property, it’s time to look for your mortgage. Fannie Mae and Freddie Mac will approve loans backed by manufactured homes – they do charge a .5 percent fee. This financing, referred to as GSE or conforming lending, accounted for only about ten percent of financed manufactured home purchases in 2011.
FHA and VA lenders do not assess this fee, and in 2011, government mortgages were used to finance about one-fourth of all manufactured home purchases where a mortgage was used. The main sources of loans on manufactured homes, though, wereportfolio lenders (which may be home builders and dealers) – in 2011, they financed 65 percent of manufactured home purchases involving mortgages. If you buy a new manufactured home, the builder might offer financing. You can compare that rate to quotes from mortgage lenders to get your best deal.
Fannie Mae and Freddie Mac will only finance duplexes to 85 percent of the property value, and triplexes and four-plexes up to 75 percent. There is a one percent add-on to the loan fees for this kind of financing. VA and FHA lenders do finance multi-unit properties without these additional fees. FHA’s loan limits are higher for multi-unit property than for traditional homes. You are required to live in one of the units if you want a government-backed loan.
Shopping for your mortgage
When you finance anything but a standard, single-family, traditionally-built home, you can run into issues with the pricing and availability of mortgages. Published rates, in that case, aren’t very helpful to you, and you’ll need to get custom mortgage quotes when you compare lenders. Fortunately, it's easy to do that online.