A look at the FHA’s manufactured-home loan program
Property that can be purchased with a FHA Title I loan
- A mobile home
- A lot on which a mobile home is located
- A mobile home and lot in combination
Consumer financing for mobile homes has been a controversial subject in recent years. Most people who finance a mobile-home purchase take out what is known as a chattel loan, which is backed by the dwelling itself and not the land. These loans can be hard to find, and the rates can be high.
Many news stories have pointed to the lack of options for mobile home buyers, but the federal government will back chattel loans. For nearly 50 years, the Federal Housing Administration (FHA), through its Title I program, has provided a pathway to get a government-insured loan to purchase or refinance an existing loan on a mobile home.
Title I loans can be used to purchase or refinance the dwelling only, a developed lot for a manufactured home, or a manufactured home and lot in combination. The mobile home must be used as the principal residence of the borrower.
Chattel loans can qualify
To qualify, you don’t need to own the land, but do need to lease at a suitable home site with adequate water and sewer services. Most typically this lease will be at a mobile-home park or manufactured-home community, but it can also be private home site that meets established standards.
If you are leasing the land, FHA’s overseer, the U.S. Department of Housing and Urban Development (HUD), requires proof of a three-year initial lease term. That lease also must contain a provision that requires the park owner to give the homeowner a notice of 180 days if the lease is to be terminated.
As with other FHA loan programs, the government doesn’t lend you money, but guarantees the default risk to an approved lender.
As the borrower, you will negotiate the loan terms and interest rate with the lender underwriting the loan. To qualify, you will have to make a minimum downpayment and demonstrate your ability to make the payments.
Loan terms differ
The downside of Title I is that the loan limits are somewhat modest. As of June 2017, the standard maximum loan amounts available under the Title I program were $69,678 for the manufactured home only; $23,226 for the lot; and $92,904 for the home and lot in combination. These limits can be increased in areas deemed high cost, however. Interest rates on mobile-home loans can also be several percentage points higher than on a standard FHA loans backed by property. Title I loans carry a fixed rate for the entire term.
The loans have a maximum term of 20 years for a single-section mobile home, or a mobile home in combination with the lot. The maximum term for financing just a lot is 15 years, but multi-section mobile homes in combination with lot can have terms of up to 25 years.
FHA has a number of requirements for Title I, however. To be eligible, the mobile home must have been constructed after June 15, 1976, and conform with Federal manufactured-home construction and safety standards. If the mobile home was constructed prior to June 1976, you won’t be able to qualify for Title I.