Home Loans for Manufactured Homes
If you're a budget-minded homebuyer, you may be thinking about a manufactured home. But can you get a mortgage for one in the current economic climate?
Getting a mortgage or other financing for a manufactured home can be more complicated than it is for a traditional home. There are a variety of restrictions you don't encounter with financing other types of home purchases, and many lenders don't handle loans for manufactured housing. But as long as your credit and finances are in decent shape, you should be able to qualify.
Manufactured housing vs. modular homes
A clarification before we go any further. There's a lot of confusion over the term "manufactured housing," which is often applied to any home with pre-made components. Properly speaking, "manufactured housing" refers to units that used to be called "mobile homes". These are fully factory built homes, consisting of one or more units, with a steel frame that allows them to be hauled to the home site on their own wheels.
The term is also sometimes used to refer to what are more properly called modular homes, which are prefabricated homes featuring construction similar to traditional houses. These are built as modules that are assembled on-site on a permanent foundation, with final finishing done on-site. They are almost identical to traditionally built homes and have similar financing requirements.
For our purposes, we're discussing manufactured homes. That's the official term that's been in use since 1976, after the federal government adopted minimum standards for what are still commonly called mobile homes.
FHA, VA financing available
Generally, you can expect to pay a considerably higher interest rate on a loan for a manufactured home that you would for a traditional mortgage, usually two or three percentage points higher - or more. That's partly because manufactured homes are treated more like personal property than real estate, since they could potentially be hauled away at some point in the future.
Both the FHA and VA offer financing for manufactured home purchases. FHA guidelines vary based on whether you're buying just a manufactured home, the lot you plan to locate a manufactured home on, or both the home and lot together. The maximum loan term is only 15 years if you're just buying a lot, but can be as long as 25 years if you're buying the home and lot together. A 20-year term is more common, however.
If you're buying both the home and lot, the FHA will lend you as much as $92,904. For just the home itself, the official limit is $69,678. However, the FHA allows those limits to be increased as much as 85 percent in certain high-cost areas, so the actual limits are $171,872 and $128,904, respectively, depending on where you live.
The VA allows homebuyers to borrow up to 95 percent of the purchase price of a manufactured home, although local loan limits regarding the maximum you can borrow will apply. The FHA officially will allow down payments of as little as 3.5 percent, although most lenders will require at least 10 percent down.
Better terms for lot owners
You get your best rates and terms if you're going to own the lot where the manufactured home will be situated and if you place it on a permanent foundation. That allows you to obtain a loan for Real Property, which also entitles you to a tax credit on your interest payments. If you're renting the lot, the purchase of the home will be treated as a Personal Property loan, and won't be able to deduct your interest payments.
Most financing for manufactured homes is arranged through retailers of such homes - about 80 percent. Many offer FHA and VA programs. You may be able to get financing through an independent lender, but if you do, you can be pretty sure they'll insist that you own the lot and place the home on a permanent foundation. Most buyers who place their homes in manufactured home parks, courts or subdivisions obtain their financing either through the manufacturer or the property owner they rent the lot from.
Manufactured homes can provide an affordable entry into home ownership for many who do not have the means or desire to make the expenditures required to obtain other types of housing. But the rules of the game are a bit different from the regular housing market and it's well worth your while to get to know them before you jump in.