How to Finance a Mobile or Manufactured Home

Manufactured homes are a wise option for homeowners looking for a newly built modern home that comes with an affordable price and monthly mortgage payment.

Though the term “mobile home” is still used, these single, double and triple-wide prefabricated homes are now referred to as manufactured homes and average from 1,000-3,000 square feet in size. And the look of these manufactured homes has come a long way – many have a modern appearance and have some of the features of newly-built homes.

Financing a manufactured home or any other type of home is challenging, but it can be especially hard for a new homeowner. It’s no longer common for buyers to make a 20% down payment on the purchase price. Many public and private organizations help buyers who have less than 5% available for a down payment.

There are many responsibilities owning a home that new buyers should be familiar with, and they apply to manufactured homes too. Maintenance costs should be part of a monthly budget, along with “rent” for the land the house sits on, property taxes and insurance.

The biggest cost, of course, will be buying and financing a mobile or manufactured home. Mobile home financing is different than for a standard home loan, but various programs can make it easier to qualify.

The biggest difference is that loans for mobile and manufactured homes are only for the home itself, not the land it sits upon. The park or community usually owns the land and leases it to homeowners. That’s the “rent’ we referred to above.

These loans are called chattel loans. They are a home-only loan and technically not a real estate loan. It’s a personal property loan and is also available if you already own the land and need to borrow money to buy the physical home.

Can I Finance a Manufactured Home?

Financing the purchase of a manufactured home can be much easier than financing a traditional home.

Financing terms depend on the lender, but the minimum credit scores for the options we discuss below, range from 580-650. Scores higher than 650 should get slightly better terms. Scores lower than 580 may not qualify for a loan at all.

Difference Between Manufactured, Mobile and Modular Homes

If you’re considering buying a manufactured, mobile or modular home, it’s important to understand the differences between them.

Pricing options vary, as do how they’re built and installed. Safety standards required in their construction also vary. That makes it easier to get financing for some types of these homes.

Mobile homes are defined as factory-built before June 15, 1976. That is before regulations required certain safety standards. Most lenders avoid lending for what, by definition, are mobile homes.

Manufactured homes are factory-built after June 15, 1976, and subject to federal safety standards set in 1974. Manufactured homes are built on a permanent metal chassis and can be moved after installation, but that can interfere with financing.

Modular homes are factory-built homes assembled on-site. You’ve probably seen them when driving on the highway – they’re the homes with the flags and “wide load” signs. Modular homes must meet the same local building codes as traditional site-built homes and are usually installed on a concrete foundation. Loans are usually easier to get for modular homes because they hold their value and appreciate more than mobile or manufactured homes.

Manufactured Homes

A manufactured home meets federal safety standards established in 1974. These homes are built in a factory and can be set up on blocks, metal piers or a permanent foundation. A mobile home can be moved after it is set up; a manufactured home is not intended to be moved.

Manufactured homes must meet local building standards for the communities where they are located. Companies that build these homes must have their design approved by a HUD-approved agency, which ensures the plan is safe and complies with the law.

Mobile Homes

The determining factor in whether a home is a mobile home is the date it was made. Factory-built homes made before June 15, 1976, are mobile homes. At that point, HUD enacted the National Manufactured Housing Construction and Safety Standards Act. After that date, new safety standards were implemented and these homes were given new designations.

A factory-built home built after June 15, 1976, is a manufactured home.

A mobile home was built at a factory and brought to a site to set up. It could have used metal tie-downs in lieu of a foundation. Homes made after the qualifying date have improved standards, but their value falls into the “location, location, location” principle of real estate: Its location goes a long way to determining the value.

Modular Homes

Modular homes are built in a factory but assembled at the site where the home will be located. These homes can be delivered in two or more modules (thus the name), and assembled on site by local contractors. Modules could consist of rooms, or complete sections with walls and roofs. Plumbing and electrical systems are installed before the modules are shipped.

Modular home design has come a long way. Some are two stories, some have basements. All have features of traditional homes, including optimal energy efficiency. Buyers can even design the home to their liking. The homes must be placed on flat land, or land that has been prepared to accept the modules.

Modular homes must meet the same state, county and local building codes as regular homes.

Ways to Finance a Manufactured Home

Keep these factors in mind when seeking financing:

• Where will you put the home? – The loan will likely be for the home only, so you’ll need to either buy the land for it through another loan or rent some land through a mobile home community. Renting land could mean you will not be eligible for some loans.
• Bigger homes may not be eligible for some loans – Buying a double-wide home that costs $100,000 or more isn’t allowed in an FHA loan. Maximum loan amounts vary by the type of home bought.
• Compare lenders – Not only should you compare the type of loan, but see how fees and interest rates vary among lenders.

Here are four broad financing options:

Bank or Credit Union

If you own the land under your manufactured home, you are in luck. Banks, credit unions and other lenders usually require you to own the land in order to get a mortgage.

If you own the land, financing a manufactured home is fairly similar to financing a traditional home. You’ll need a credit score in the mid-600s, a down payment of 10%-to-20% (as low as 3.5% with an FHA loan), and income that is roughly one-third the mortgage.

If you don’t think you have the minimum credit score required, you can start working on your credit score. The fastest way to improve it is to get moving on credit card debt.

Online credit counseling from InCharge Debt Solutions can help. InCharge is a nonprofit credit counseling agency that provides a free snapshot of your credit report. It can help you come up with a repayment plan for credit card debt, such as a debt management program.

In addition to improving your credit score, owning the land you want to put a manufactured home on can make being approved for a loan easier.

While 80% of manufactured homes are owned by their inhabitants, only 14% of those people also own the lot on which their unit is placed, according to Housing Assistance Control, a nonprofit organization that tracks affordable housing.

If you don’t plan on purchasing land for your manufactured home, you can still finance the purchase with a bank or credit union lender, or possibly through help from the federal government. These programs are designed to help consumers get mortgages on manufactured homes, which account for 7% of the U.S. housing market. That’s almost 22 million homes.

Department of Agriculture Programs

Housing assistance programs began in the New Deal era (1930s) when the government wanted to provide better homes for the rural population. The programs were administered by the USDA because the programs were geared toward on-farm housing.

The best thing about a USDA loan (also known as a Rural Development loan) is that there is no down payment required. When you wonder how to buy a mobile home with no money down, think USDA. You are also allowed to finance 100% of the home’s appraised value.

The house must meet geographical requirements, but that doesn’t mean you have to live 20 miles from your nearest neighbor. About 97% of the U.S. land mass is USDA loan eligible, an area encompassing 109 million people.

Interest rates fluctuate with the market but are usually less than conventional loans. The downside to a USDA loan is a Guarantee Fee of 2% is added to the total loan amount, and an annual fee of .5% gets added to your monthly payment.

The minimum credit score to qualify is 640. And unlike traditional mortgages, you can be disqualified for making too much money. The maximum limit is 115% of the median income for the county or area you want to live in.

Check with your bank or credit union to see if they can help you with a USDA loan application for a manufactured loan.

Here’s a quick look at the features of a USDA Manufactured Home Loan:

• No down payment required
• Can finance 100% of appraised value
• Minimum credit score required: 650
• Must meet geographic requirement: rural location
• Can’t make 115% or more of county’s median income
• Fees: 2% fee added to the total loan, and .5% to monthly payment

Federal Housing Administration Programs

If you exceed the USDA’s income limit, you should consider an FHA loan as they have no wage maximums. The FHA doesn’t actually give you money for a home loan. It insures the loan, which entices lenders to finance mortgages since they are backed by the government.

It’s up to the homebuyer to find an FHA-approved lender and negotiate terms.

There are two types of FHA loans:

1. FHA Title II loans: A down payment as low as 3.5% is needed. Loan terms can be as long as 30 years. Title II loans are real estate loans, meaning you’ll have to purchase the land and home together. The home must be permanently installed on an approved foundation system.
2. FHA Title I loans: These loans are for personal property, so you don’t have to own the land that the home sits on. If the land is leased, the initial lease must be at least three years. Down payments can be as low as 5%. That amount can vary by lender, depending on your credit score. Repayment terms are shorter than Title II loans.

The maximum limits on Title I loans are:

• If you’re buying the home and the land, the maximum mortgage is $92,904.
• If you’re buying the home without the land, the maximum is $69,687.
• If you already own the home and are buying just the land, the maximum is $23,226.

All FHA loans are assumable. That means if you decide the sell your home, the buyer can just take over the payments. That’s a great feature if interest rates have risen since you got the mortgage.

Like a USDA loan, the biggest downside is mortgage insurance. The upfront premium is 1.75% and the monthly fee is .85%, which is divided equally into 12 installments per year.

As for credit, the score requirement varies from lender to lender, but the minimum score that will qualify for an FHA loan is 580.

Scores between 580 and 669 are considered fair. Anything below that is considered poor. But if you are in that range, don’t give up the dream.

When it comes to financing a mobile home or modular home financing or even manufactured home loans, there are programs designed to help financially strapped consumers with bad credit.

Nonprofits like InCharge Housing Counseling have credit counselors who work to improve your credit and find out if you qualify for down payment assistance.

The bottom line is that if you want to own a home, a manufactured one might be the way to go. To get an FHA loan, find a bank, credit union or mortgage lender who works with FHA-loans.

A quick look at the features of an FHA Manufactured Home Loan:

• Term is typically 20 years
• Minimum down payment is 3.5%
• Maximum loan for home plus land: $92,904
• Credit score must be above 580
• Future buyer can assume your mortgage at your interest rate
• Fees: 1.75% of purchase price, monthly fee of .85%

VA Loans

Veterans Administration (VA) loans are another way to buy a manufactured home. To qualify you must be a service member or veteran.

These loans are for manufactured homes that will be attached to a permanent foundation on land that’s owned by the borrower. If you’re buying the home and land together it must be your primary residence.

Other VA loan restrictions include:

• Review of potential borrowers’ employment history, credit history, assets and income.
• Maximum loan terms.
• 1% funding fee.
• Maximum loan amount is 95% of the purchased value.

Chattel Loans

A chattel loan is used to buy moveable personal property, which is often placed on land the borrower doesn’t own. Often a chattel loan is used for items like planes, boats, mobile or manufactured homes and farm equipment.

Chattel loans for manufactured homes are often smaller than standard home loans because you’re not buying the land. This can make financing easier for some because they’re borrowing less money.

However, the repayment periods are shorter — 15 or 20 years — which could lead to higher monthly payments. But you’ll own the home a lot quicker than with a 30-year mortgage on a standard home.

Another downside is that interest rates can be higher on chattel loans. A study by the Consumer Financial Protection Bureau found that the annual percentage rate, or APR, was 1.5% higher on chattel loans than standard mortgages. Loan processing fees, however, were 40-50% lower.

Fannie Mae & Freddie Mac

Some lenders offer Fannie Mae or Freddie Mac loans. Fannie Mae loans are 30 years, with a down payment as low as 3%. Freddie Mac is a more conventional loan with a fixed-rate mortgage and repayment in 15, 20 or 30 years, or on a 7/1 or 10/1 adjustable-rate mortgage. Like Fannie Mae, Freddie Mac loans can be obtained with as little as 3% down.

Fannie Mae loans are obtained through the MD Advantage Program, which offers loans at lower rates than traditional manufactured homes loans. Qualifications include installing the home with a driveway. The home must meet certain construction, design and efficiency standards.

Freddie Mac loans come through the Freddie Mac Home Possible mortgage program. In some cases, grant money can be used for the down payment.

Should I Buy a Manufactured Home?

The biggest attraction is the cost. The average national price of a new manufactured home is $81,700, while the average national price of a new site-built home sold in 2020 was $287,465, according to the HomeAdvisor.com.

The costs for manufactured homes vary greatly depending whether it’s a single wide (about $54,000 for a new one), double-wide (about $104,000 new) or triple-wide ($150,000 and up).

Compared to traditional homes, they are decidedly less expensive. But contrary to that reputation, mobile homes are not necessarily “cheap” or worthy of being in a Hank Williams Jr. song. The state of the manufactured home art has come a long way.

To see what financing terms you may  get to buy a manufactured home, the first thing you should do is review your credit report. The better your credit score is, the more likely you are to qualify for better loan terms.

You can get a free copy of your annual credit report at annualcreditreport.com from each of the three major reporting bureaus (Equifax, TransUnion, and Experian). Or call 1-877-322-8228.

If you need additional help or have questions about your personal credit and finances, you may want to discuss your financial situation with a credit counselor.

For additional housing counseling, nonprofits such as InCharge Debt Solutions can provide more information.