Financing a manufactured home
Getting a loan for a manufactured home
- A manufactured home must meet several criteria to be eligible for a government-insured mortgage.
- Manufactured home retailers can arrange financing but it is wise to compare lenders first.
- Chattel loans, or personal-property loans, are another financing option.
Manufactured homes account for 6 percent of all occupied housing in the United States, according to the Consumer Financial Protection Bureau (CFPB). Outside of metropolitan areas, such housing is even more prevalent, accounting for 14 percent of occupied homes.
These homes also are relatively inexpensive to make and can be less than half the cost of site-built homes on a per-square-foot basis. This makes manufactured homes a key piece of many affordable-housing plans.
Figuring out exactly what constitutes a manufactured home — and how to finance it — can be tricky, however.
Defining a manufactured home
The terms "mobile home" and "manufactured home" are interchangeable, although many lenders now prefer to call them manufactured homes.
Manufactured homes are built and assembled at off-site factories before being transported to the site where the home will remain. After a manufactured home is transported, the wheels and axles are removed, and the house is permanently attached to a foundation.
The most common sizes of manufactured homes are single-wide, double-wide and triple-wide. The actual sizes may vary from manufacturer to manufacturer, but a single-wide is typically shipped as one section, a double-wide as two sections and a triple-wide as three sections.
Manufactured homes must be built to Manufactured Home Construction and Safety Standards, a code set by the U.S. Department of Housing and Urban Development (HUD). This code requires that homes be built on a permanent chassis. Each section of the home (for example, two if the home is a double-wide) must have an HUD certification label on its exterior.
Manufactured homes differ from prefabricated housing — also known as modular housing. Modular homes are built on an offsite location to the buyer's specifications — with the buyer perhaps choosing from a number of available plans. Prefabricated homes must be constructed to the same building-code standards as traditional site-built homes.
According to HUD, the most common way buyers finance their manufactured home "is through a retail installment contract, available through your retailer." Many other lenders, however, will offer government-insured or conventional mortgages for this type of housing — and it is always best to check with several lenders before agreeing to financing from a retailer. Be aware, according to the CFPB, that interest rates are typically higher for manufactured-home mortgages than for loans on site-built homes.
Government-insured loans are available through a variety of agencies, including the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA) and the U.S. Department of Agriculture (USDA). Each of these types of financing have certain requirements that must be met, including the following:
- Condition. The house must be acceptable and suitable to live in year-round.
- Age. The home must have been built after June 15, 1976.
- Foundation. The home must be attached to a permanent foundation and is not to be moved from its original location.
There are typically many other requirements that must be met for these programs, which can be explained in detail by prospective lenders that offer the programs.
Chattel loans are another option. Otherwise known as personal-property loans, these often have lower origination costs and close more quickly than mortgages. Interest rates, however, may be significantly higher than on mortgages, and chattel loans may not have the same consumer protections as mortgages.
Just as with procuring a loan for a site-built home, or for any other large purchase, it is worthwhile to shop around for a manufactured-home loan, and to discuss all of your options with the lenders you consider. Depending on your exact situation, you may find that a government-insured loan program, a chattel loan or another type of financing is best for you.
In late 2017, Fannie Mae and Freddie Mac — the nation’s largest purchasers of home mortgages — announced they were re-entering the chattel-loan market. They plan to purchase about 4,000 loans nationwide, with a combined value of about $200 million, in 2019 and 2020.
The purchases are part of pilot programs incorporated into the “Duty to Serve” plans that Fannie and Freddie have developed under the guidance of the Federal Housing Finance Agency (FHFA) to address affordable-housing issues. Fannie and Freddie haven’t been involved in chattel financing in many years, but affordable-housing advocates have generally favored their return to the market as a path for increased liquidity through the secondary market.
Their initial purchases are designed to test the viability of the market and how well chattel loans perform. There are risks to securitizing these loans, FHFA said, as manufactured homes generally depreciate quickly, and neither Fannie nor Freddie have experience in chattel loans since they were placed in federal-government conservatorships in 2008. Default rates for chattel loans are estimated to be as high as 20 percent to 30 percent, while default rates for all first-lien mortgages have been less than 1 percent in recent years, according to an S&P/Experian index.
Fannie and Freddie already purchase loans backed by manufactured homes that are titled as real estate. Fannie Mae, for example, financed about $1.8 billion of these loans in 2017. Only about 20 percent of new manufactured homes in 2017, however, were titled as real estate, according to the Manufactured Housing Institute.