Mobile Home Lending Options

In this article, we want to provide you with all the information you need to finance your mobile home. From what your options are, to why mobile home lending works the way it does, we’ve got you covered.

What constitutes a mobile home?

Yes, we know. This one seems rather obvious. But for the purposes of this article, it’s important that all of us are on the same page when it comes to a mobile home. The information in this article is relevant to what should nowadays actually be called a manufactured home. Since the HUD code came into effect in 1976 this has been the official name for mobile homes.

However, old habits die hard and these homes are still regularly referred to as mobile homes which can easily be confused with trailer homes, and motor homes or RV’s. These cannot be financed with any of the means described in this article.

Manufactured homes and modular homes can also be confused. However, there are some very important differences between them. The two most important differences are:

• Modular homes cannot be moved.
• They can be financed through the same methods as stick-built homes.

Modular homes are much more similar to stick-built homes. They are put together on site on permanent foundations and do not come with an undercarriage and axles to be transported to a new location.

So, in summary, this article is not relevant to:

• Mobile homes built before 1976, or trailer/motor homes.
• Modular homes.

To be 100% sure your home fits these criteria look for and identify the HUD tag or label. This is a red metal plate stating that the home is built according to these standards. You can also check with your county if a 433A  form has been filed with them if the property is on a permanent foundation.

Why is it hard to finance a mobile home?

You might be wondering why exactly it is so much harder and complicated to finance a mobile home. Unfortunately, there are quite a few reasons for this discrepancy. Some of them are based in fact, but others are only as a result of our stereotypes and misconceptions surrounding mobile homes. Here are some of the most prominent reasons:

• Financially vulnerable inhabitants – In society as a whole, there is still this persistent stereotype that people who live in mobile homes do so because they are financially in trouble. Although it’s certainly true that many people choose mobile homes because of their financial capacity – it does not mean they are not reliable loanees.

• Stigma of safety – Mobile homes are still labeled as fire hazards or “matchstick” houses that fall apart at the first strong wind. However, since the adoption of the 1976 HUD code, mobile homes have come a long way regarding all forms of safety. Some even rival stick-built homes.

• Suspicion regarding materials – Although many mobile home manufacturers may still cut costs and try and build homes as cheap as possible, there are just as many offering high-quality products. On paper at least, the HUD code holds these manufacturers to extremely high standards.

• Mobile nature – Traditional loan methods and mortgages are built around the idea of “real-estate” and that the home cannot be removed from the property under any circumstances. Since mobile homes can be moved pretty much at will, this creates disagreement in how they should be handled. As such, having a mobile home resting on privately owned land and permanently affixed to a foundation is seen as a commitment to never move the home and drastically increases your chances of getting financing.

Financing vs. Refinancing

If you want to refinance your existing home and not take out a new mortgage on an existing or new home, there is some good news. You can look for the exact same financing options we list below. What effectively happens is that your new lender pays off your existing mortgage balance and you pay down a new mortgage with them. It might seem like there is nothing to gain, but let’s look at the reasons why people refinance:

• Change from a higher interest rate to a lower interest rate.
• Take on a shorter or longer term.
• Switch between a fixed-rate or adjustable interest rate mortgage.
• Package various existing loans into one.

Rate and term refinancing

The first option gives you a mortgage of exactly the same value as your previous one but at a much shorter term and a lower interest rate. For example:

1. You took out a $75,000 loan at an interest rate of 6% on a 30-year term.
2. Now you refinance with a $75,000 loan at a rate of 4.5%, payable over 15 years.

The obvious advantages are if you simply want to lower your installments, your term of commitment, or just get a better deal than your original loan, especially in times like the present with very low mortgage rates.

Cash-out refinancing

The explanations you encounter on this kind of refinancing might seem a bit complicated, but it really isn’t. What basically happens is the new lender deducts the remaining value of your mortgage from your home and gives you this amount in cash. You then pay off a higher loan amount (usually the cash difference) but at a lower rate and for a different term. For example:

1. Original loan is $75,000 at an interest rate of 6% for a 30-year term.
2. New loan for $100,000 at an interest rate of 4.5% for a 15-year term.
3. You get $25,000 in cash to do with as you please.

Obviously, what attracts loanees to this option is that you get cold hard cash. This can be used to buy something you need, go on holiday, or make a downpayment on another mortgage.

However, we should warn you to proceed with caution. Since mobile homes tend to depreciate in value (especially if the land doesn’t form part of the mortgage) some loanees end up paying down a loan amount that is much higher than their home’s current value.

Mobile home lending options

If it has all seemed like doom and gloom up until this point, fear no more! There are still four very adequate options available when you want to finance your mobile home. Every day, the options are getting better and better, closing the gap with traditional, stick-built homes.

Here is a quick rundown of the four options. We encourage you to familiarise yourself with some of the terminology used and to consult an expert if you feel overwhelmed by all the figures.

Conventional mortgage or loan

Just to prove our point that it is possible to finance a mobile home we will start with a conventional mortgage. Contrary to what you may believe this is always an option. However, most lenders will have strict requirements that you need to adhere to in order to receive a loan. It is generally not possible to finance anything smaller than a double wide with a conventional loan.

These requirements also extend to your credit rating and the home itself. Usually, the closer your property is to real estate, the better. This includes owning the land the home is placed on, having a permanent foundation or basement, having the home permanently affixed to the foundation and property, and that the home has never been moved before. The lowest credit score that gives you a shot at a loan is 580, although 700 and above is much better.

A few, good, reliable examples include Fannie Mae, Freddie Mac, Cascade Loans, and NLC Loans. Each has their own unique requirements on top of the standard ones listed above. For example, Freddie Mac requires you to comply with their Single-Family Seller/Servicer Guide (Guide) Chapter 5703. Fannie Mae requires it to be the principal residence or you to at least use it as a secondary home.

Most loans start with a minimum downpayment of 5% and fixed loan terms of 15 or 30 years. Interest rights are highly dependent on the lender and your credit score but should be around 5% as well. The next two methods make it even easier to get a loan.

FHA Loan

Technically an FHA loan should fall underneath a conventional loan. After all, you still take out a conventional loan at a lender. You should notice that most of them also provide the option of an FHA loan.

The FHA is the Federal Housing Administration and they help out loanees secure loans by ensuring the lender of payment in case the loanee should default on their payments or become unable to continue paying them. As such, they don’t lend you money and don’t provide loans. They just reduce the risk for lenders.

You can get an FHA assured loan on a manufactured home alone, the lot, or the both put together. The FHA really backs you up and it’s understandable that they would have their own requirements to make sure they are helping a deserving applicant.

You do not need to own the lot and in the case that you lease it, the FHA requires the lessor to give you a term of 3 years and a minimum of 180 days notice of termination. This is to protect all parties involved.

Other requirements

• Property cannot be in a flood zone.
• The mobile home must not have been moved before.
• The home must be built after 1976 when the HUD code took effect.
• Mortgage insurance and impound account for taxes and insurance applies.

Maximum Loan Amount

• Manufactured home only – $69,678.
• Manufactured home lot – $23,226.
• Manufactured home & lot – $92,904.

Maximum Loan Term

• 20 years for a loan on a manufactured home or on a single-section manufactured home and lot.
• 15 years for a manufactured home lot loan.
• 25 years for a loan on a multi-section manufactured home and lot.

Because your loan is insured by the FHA you can get pretty generous terms. Both the down payment and interest rate can go below 5%, even down to 3.5%.

VA Loans

We won’t say too much about this type of loan. It’s almost exactly the same thing as an FHA loan, except that you are sponsored by the Department of Veteran Affairs and not the FHA. Even their requirements and concessions are similar. You also do not need to own the land and the terms are fixed.

Of course, you will need to have served and have a received a certificate of service. Some lenders, such as Cascade loans even cover all of the loans cost, meaning there is a 0% downpayment. However, you will still need a credit score of 620. Interest rates can also reach as low as 3.5% making this one of the most generous financing avenues.

Chattel mortgage or loan

The last option isn’t exactly a loan. It’s more like a lien that the lender holds against the specific piece of property until the loan is repaid. The added risk from the outset is that your property can be taken from you if you cannot continue paying your lien much easier than with a mortgage or loan.

The rates that you are subject to are also usually much higher than compared with a mortgage or loan. Interest rates start at around 3-4% higher than is normal for a mortgage or loan. 6.5% is about as good as you can hope for. However, down payments still start at the 5% range but if you have the money it’s best to go for a higher down payment and reduce your interest.

Interest rates are also very sensitive towards your credit score and most chattel mortgage providers are very strict on their criteria.

So far, chattel mortgages might seem like bad news but they have their merits. For one, shorter terms are the norm which also means lower total interest. The closing costs are also generally much lower. These include origination fees, appraisal fees, and title searches.

Does a mobile home have any equity?

t’s a crucial question, whether you’re buying, selling, or simply curious as to whether purchasing a mobile home is a good choice in the long run.

Sometimes. It depends on (1) how old the mobile home is and (2) whether the homeowner is doing anything to increase the equity (are they letting the home fall into ruin, or are they making improvements?). There are also other factors. No matter how well the homeowner keeps their mobile home looking and running, there’s market trends and property situations to take into account.

Since mobile homes are not usually affixed to the land they’re placed on, they’re considered mobile (obviously!), and buying and selling them is similar to buying and selling a car. You can’t sell a car for more than you got it for ten years after you bought it new. Unlike a traditional home, mobile homes usually depreciate in value and, well, the word equity just isn’t worth much after that!

So sometimes equity isn’t even applicable to the situation. However, there are many different circumstances. If the land a mobile home is placed on was leased to the homeowner, there won’t be nearly as much equity when the owner goes to sell it as there would be if the homeowner also owned the property. A mobile home and a piece of land that come together are far more valuable to a potential buyer.

MAKING SURE YOUR MOBILE HOME HAS EQUITY

Does a mobile home have any equity? It’s partly up to you! For example, if you were able to buy a brand-new mobile home and place it on a piece of land all your own, there you go! Equity. Now, since mobile homes depreciate, this doesn’t mean you can rest completely easy. Mobile homes are perishable. They don’t stick around forever if they aren’t taken care of, updated, and have a modest amount of curb appeal.

Your best bet? Keep an eye on design trends. Keep your mobile home updated. Those handyman projects you’ve been meaning to tackle for years? Right before you put your mobile home on the market, make sure all those boxes are ticked. And last but certainly not least, consider moving your mobile home to a piece of land.

A FEW MORE EQUITY TIPS THAT CAN MAKE OR BREAK

There’s always the unknown. You can’t know for sure whether the mobile home you’re buying will have any equity in a year, two years … or ten years. Sometimes a mobile home owner’s equity climbs unexpectedly because suddenly everyone is moving to their area. Buying a mobile home in a hot area isn’t a guarantee it’ll still be a hot area when you want to sell it. Even buying your own lot is not a magic solution. It depends at least partially on market trends and depreciation.

Financing your mobile home

As you can see, there are quite a few options available to you when it comes to mobile home lending. After you decide which one best suits your situation, you’ll need to apply for financing. Make sure you have all of your financial information organized and ready to show the lender. First impressions make a difference! If you are put-together, punctual and well-informed, you’ll convey the message that you are responsible and trustworthy. Here are a few other things to consider when purchasing your own mobile home.