Owning a home is still a symbol of financial stability and security for many Americans. But the path to homeownership has been littered with obstacles. With homeownership at 20-year lows and the percentage of cost-burdened renters climbing across all income levels, America’s need for quality, affordable housing has become critical.
One solution, manufactured housing, offers an affordable alternative to site-built homes. However, this type of property has a specific and unique set of challenges for buyers. If you’re thinking about purchasing a manufactured home, here are the key things you need to know.
Fannie Mae Backed Mortgages and How To Qualify
Did you know manufactured housing loans are part of Fannie Mae’s portfolio? It’s part of their commitment to help expand affordable housing to Americans for whom site-built homes may be out of reach, especially in high cost or rural areas.
Fannie Mae backed mortgages only approve homes that have been titled as real property. This means a home that has been built on a permanent chassis and installed on a permanent foundation system. A real property must include both the home and the land.
What else does your property need to qualify? The loan must be first-lien (highest priority claim), fully amortizing fixed-rate or adjustable-rate with an initial fixed-rate periods of 7 or 10 years. The loans can be for principal residences and second home dwellings. Properties that are ineligible include: temporary buydowns (reduced interest rates in exchange for upfront cash), investment properties, and single-width manufactured homes (unless in a Fannie Mae approved subdivision, co-op, condo, or planned unit development).
In order to see if you qualify, we recommend shopping for a mortgage with LendingTree, our parent company. With a single online form, over 400 lenders will compete for your business. On the form, you can specify "mobile/manufactured home" to ensure that you will only get matched with appropriate lenders.
The Cost of a Real Mortgage
According to a recent Consumer Financial Protection Bureau (CFPB) study, manufactured home buyers typically pay higher interest rates than site-built home buyers. This is because large portions of manufactured housing loans are classified as higher-priced mortgage loans (HPMLs).
HPMLs have annual percentage rates of at least 150 basis points over the average prime offer rate (APOR). APOR is calculated annually and is based on average interest rates, fees, and other terms on mortgages that are offered to highly qualified borrowers.
Lenders for HPMLs take extra steps to make sure you can pay back the loan, and this can lead to higher interest rates. CFPB’s study cites an estimated interest rate for manufactured homes at 6.79 percent in 2012.
Because manufactured home mortgages tend to have higher interest rates, you should try to save for a 20% down payment to avoid the added expense of private mortgage insurance (PMI). PMI varies depending on your credit score and the amount of loan, but it can cost up to 1.5% of your loan’s balance every year.
Be Careful with Chattel Loans
Three-fifths of manufactured homeowners own the land their property is on. This gives them the ability to title their home as real property, and makes them eligible for a Fannie Mae backed mortgage. But what if the manufactured home you want to buy is permanently attached, but on leased land? You can title the home as personal property and apply for a chattel loan.
With manufactured housing production at historically low levels, many traditional mortgage lenders do not originate chattel loans. In fact, the chattel market is concentrated among five lenders: 21st Mortgage, Vanderbilt Mortgage, Triad Financial Services, U.S. Bank, and San Antonio Federal Credit Union. With fewer lenders available, you’ll have fewer options to choose from when shopping for loans.
Although origination fees are less expensive, chattel loans are typically shorter term and may be priced 50 to 500 basis points higher than a comparable mortgage for a manufactured home. Also, low credit scores may leave you with at least a 10 percent interest rate. Why? According to the Manufactured Housing Institute (MHI), these 15-20 year loans require higher rates to cover fixed servicing and origination costs, a higher default rate, and a higher cost of funds.
In addition to being more expensive, this type of financing offers fewer consumer protections, including parts of The Real Estate Settlement Procedures Act (RESPA), state foreclosure, and repossession laws that only apply to mortgages for real properties.
Just Say “No” To No Title
What does a title actually represent? Your right to ownership of a piece of property that may have once belonged to someone else. Whether you perceive a property as personal or real, no title is a red flag to stay away.
Stuck with a Bad Loan? Here Are Your Options
Do you owe more money than your home is worth? Are you struggling to afford your monthly payments due to higher than average interest rates?
Being stuck in a bad loan can feel overwhelming, and with higher than average loan default rates, manufactured homeowners should keep a close eye on their home and finances.
Luckily, there are several options if you feel trapped with a nightmare loan.
Are you one of the 65% of manufactured homeowners who owns their land and financed their property with a chattel loan? Refinancing may be an option, but first you’ll have to change your home’s titling.
First, a real estate attorney or title company can assist with converting your property’s title from personal to real. Then, you may be eligible to refinance to a mortgage. Before making this change you should think about your property’s tax designation. How much more will you have to pay in real estate taxes vs. personal property taxes?
Do you own the land, but your home isn’t permanently attached? You may want to consider adding a permanent chassis and permanent foundation system so the home is eligible for a mortgage. But this upgrade can be costly. Again, you should compare options to make sure this conversion will pay off.
If you’re renting the land, the Federal Housing Administration's Title I program may offer the option to refinance, however, the home and property must meet FHA’s guidelines. These guidelines include:
- You must have sufficient funds for the down payment and meet the adequate income requirements.
- The manufactured home must be your principal residence.
- There must be a suitable site or park, meeting FHA’s guidelines, to place your home that includes adequate water supply and sewage disposal facilities.
Protect Your Largest Asset
If you’re thinking about buying a manufactured home, Fannie Mae backed mortgages are your safest option, and they have a strict set of guidelines. Our advice? Make sure the home is permanently attached, purchase the land, and avoid private mortgage insurance by putting 20% down. If you’re interested in another type of financing, it’s important to educate yourself on exactly what you’re agreeing to and how it may affect your financial future.
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