According to the Manufactured Housing Institute, about 22 million people in the United States live in manufactured homes. With numbers like that, it doesn’t make sense that these homes are still so misunderstood.For example, many people think that manufactured homes, mobile homes and modular homes are one and the same, but that’s not true at all. There are key differences that set the three apart and affect financing options.
Read on to learn what these differences are so that you can find the right loan for you.
Manufactured, mobile and modular: What are the differences?
Manufactured homes are built in manufacturing plants and then taken to their plot of land via a permanent chassis that’s attached to the bottom of the home. They also are built in accordance to Manufactured Home Construction and Safety Standards, a safety code set by the Department of Housing and Urban Development, or HUD.
“Mobile homes are manufactured homes, but the term is outdated,” said Alberto Pina, the co-founder of Braustin Mobile Homes in San Antonio, Texas.
“In 1976, the government decided to get involved in the regulation of mobile homes for people’s safety. That’s when the HUD Code — the National Mobile Home Construction and Safety Act — became effective. It’s also when mobile homes started being called manufactured homes.”
Like manufactured homes, modular homes are also partially constructed in a factory. However, they’re transported to the plot of land in pieces and then they’re put together on-site. Modular homes also have permanent foundations and, rather than conforming to a single HUD Code, they also have to meet he same local, state and regional building codes as traditional houses.
Financing a manufactured home
Retail installment contracts
Retail installment contracts are commonly used for manufactured homes and are slightly different from a traditional loan. In this case, rather than going to a bank or lender to get a loan for funding to buy your home, you would contract directly with the dealership from which you’re purchasing your home.
The retail installment contract is the official agreement stating that you agree to pay the dealer back over time, plus interest. However, afterward, the dealer is free to sell the contract to another lender or third party.
Title 1 loans provided by FHA-approved lenders
Title 1 loans are the Federal Housing Administration’s answer to manufactured homes. With this program, the FHA encourages approved lenders to lend to consumers by insuring the loan in case of default.
It’s used for used for the purchase (or refinancing) of a manufactured home, of a lot on which the manufactured home will be placed or a manufactured home and lot in combination, as long as the home is being used as a primary residence.
Depending on which option you choose, there will be different limits on your loan amount and loan term. They are as follows:
Maximum loan amount
- Manufactured home only: $69,678
- Manufactured home lot: $23,226
- Manufactured home and lot: $92,904
Maximum loan term
- 20 years for a loan on a manufactured home or on a single-section, or single-wide (the newer term for 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
Interestingly, Title 1 loans can also be used to buy a home that will be placed on a leased plot of land, provided that the initial lease term is at least three years and that the lease states that the homeowner will be given at least 180 days’ notice before the lease ends.
However, because the home is manufactured, it must meet certain requirements in addition to FHA’s normal qualifying standards. They are:
- The home must be built after June 15, 1976
- The red HUD label must be affixed to each section
- Minimum size to be financed is 400 square feet
- The home must be permanently affixed to a foundation that meets FHA standards
- The home must meet the Model Manufactured Home Installation Standards
- The lot where the manufactured home will be set must be designated or approved
“Buyers like this type of loan because it allows them to get a low interest rate and low down payment, as well as some of some of the sitework done, such as the base pad, skirting, decking and utilities and sewer system,” Pina said.
If you’ve served in the military, you’re eligible for a loan through the Department of Veterans Affairs and, fortunately, you can use that benefit to buy a manufactured home. Qualifying for a VA loan for a manufactured home is much the same as using a VA loan to buy a conventional home. You’ll need to provide proof of your financials, as well as a Certificate of Eligibility, which verifies that you served.
However, some of the loan terms are different. For example, you cannot finance more than 95% of a manufactured home, even though you can finance up to 100% of a traditional home.
The term lengths that are offered for these loans are also different. They are as follows:
- 15 years and 32 days for a lot purchase if you already own the home
- 20 years and 32 days for a single-family manufactured home and lot
- 23 years and 32 days for a double-wide manufactured home
- 25 years and 32 days for a double-wide manufactured home and lot
Fannie Mae MH Advantage mortgage
The Fannie Mae MH Advantage program offers flexible underwriting standards and reduced pricing for manufactured homes that meet certain construction requirements. It’s a 30-year loan that allows borrowers to finance up to 97% of their loan-to-value (LTV) ratio.
As far as what requirements need to be met in order to qualify for the loan:
- The home must be 12 feet wide and have at least 600 square feet
- It must be built on a permanent chassis and be installed on a foundation
- It must be titled as real estate
- After being appraised, it must receive an “MH Advantage Sticker” that signifies that it has certain features similar to traditional homes
Single-wides, today more commonly referred to as single-section homes, are not accepted in the Fannie Mae MH Advantage program. If you were planning on buying one, or have a manufactured home that doesn’t otherwise meet the MH Advantage qualifying requirements, you can look into their standard manufactured housing program.
Chattel loans are a common way to finance manufactured homes that sit on a leased lot. Because the land is leased, the home cannot be affixed to the ground, which makes it much harder to qualify for a traditional mortgage.
With a chattel loan, the manufactured home itself is treated as collateral for the loan. Initially, the lender will take ownership of the home. Then, once you finish paying it off in full, ownership is transferred to you.
Financing a mobile home
It would be difficult to get financing on a true mobile home, Pina warned.
Remember, the term “mobile home” refers to manufactured homes that were built before 1976, when the National Mobile Home Construction and Safety Act was released. The difficulty comes from the fact that the construction of these older homes was totally unregulated.
In order to receive financing, many lenders require that the mobile or manufactured home meets HUD’s standards. However, even if you make improvements to an older mobile home, HUD will not issue you a sticker signifying compliance.
“Fortunately,” Pina said, “you’re not buying one of these for more than $5,000 or $10,000, so the need to finance the purchase is rare.“
Financing a modular home
“Modular homes have the same loan options as what folks would call a traditional home,” Pina said. With that in mind, below are some of the most common options:
“Construction-to-permanent loans can be used In either manufactured or modular housing transactions,” Pina said.
Construction-to-permanent loans are unique in that they provide funds for the construction of the home upfront, but after construction on the home is completed, the balance is converted into a permanent loan, or traditional mortgage.
Traditional FHA loans
Because modular homes are secured to a concrete foundation, they’re eligible for a traditional FHA loan. This means that all the usual borrower requirements apply:
- You must have a debt-to-income (DTI) ratio of less than or equal to 43%
- If you have a credit score of 580 or higher, you can put as little as 3.5% down
- If you have a credit score between 500 and 579, you must put at least 10% down
- The home must be your primary residence
- You must carry FHA mortgage insurance, or MIP
- You must be able to provide proof of employment
Where to find a lender
Not all lenders work with manufactured or modular homes. But, luckily, there are many great tools at your disposal that can help you find the right lender. In particular:
- HUD has a search tool that allows you to filter approved lenders by your area.
- The Manufactured Housing Institute can provide you with a list of lenders and manufacturers in your state.
- Fannie Mae also provides a list of suggested manufactured housing lenders.
Though the loan options for manufactured, mobile and modular housing are a bit different than they might be in a traditional housing scenario, qualifying for one is a small price to pay for the affordable living that these homes can provide.
If you’re interested in one of these homes, do your research. Look into some of the loan options above, talk to lenders that specialize in manufactured housing and get a few loan estimates. It won’t be long before you find the loan program that’s right for you.
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