Manufactured and Mobile Home Loans—Chattel or Standard Home Loan?

Financing is challenging for any homeowner, especially when it comes to mobile homes and some manufactured homes. These loans aren't as plentiful as standard home loans, but they are available from several sources, and government-backed loan programs can make it easier to qualify and keep costs low.

Whether you're purchasing a manufactured home or a modular home, deciding on how you want to finance it should be a top priority. Comparing the types of loans that are available can help you make a decision.

Mobile, Manufactured, or Modular?

Mobile homes are factory-built homes made before June 15, 1976. They might be very nice homes, but they were built before regulators required certain safety standards. Most—although not all—lenders are reluctant to lend on these properties.

Manufactured homes are factory-built homes constructed after June 15, 1976. They're subject to the National Manufactured Housing Construction and Safety Standards Act of 1974, and they're required to meet safety standards set by the U.S. Department of Housing and Urban Development (HUD). These rules are often referred to as the "HUD Code." Manufactured homes are built on a permanent metal chassis and can be moved after installation, but doing so can interfere with financing.

Modular homes are factory-built homes that are assembled on site and are required to meet all the same local building codes as site-built homes rather than those required by the HUD Code. They're usually permanently installed on a concrete foundation. Like site-built homes, modular homes tend to hold value and appreciate more than manufactured or mobile homes, so it’s easier to get loans for these homes.

What you call a “mobile home” is probably a “manufactured home,” even though the home is—or once was—mobile. Either term works, but most lenders avoid lending on properties that are categorized as mobile homes.

Chattel Loans

Chattel loans are often used for mobile and manufactured homes going into a park or manufactured home community. They are home-only loans, unlike loans for homes and land together.

These loans are technically personal property loans, not real estate loans. They're also available when you already own the land, and you're just borrowing for the home.

Because you're not including real estate with this type of loan, you can keep your loan smaller. Loan-processing costs should also be lower than the closing costs on real estate debt. The closing process is typically faster and less involved than closing on a standard mortgage loan.

There are some disadvantages to this type of loan as well. Interest rates are higher, so your monthly payment, including interest costs, will probably be as much as, if not more than, with a standard mortgage loan, even if you're borrowing less. Repayment periods can be markedly shorter as well, with terms of just 15 or 20 years, although some lenders allow longer loans. A shorter term also results in higher monthly payments, but you'll be paying off the debt more quickly.

A study by the Consumer Financial Protection Bureau (CFPB) found that loan amounts and processing fees were 40% to 50% lower on chattel loans when compared to mortgage loans, and that the annual percentage rate (APR) on chattel loans was 1.5% higher.

Manufactured home dealers and specialized lenders commonly offer chattel loans.

Government Loan Programs

Several government-backed loan programs can make borrowing for a manufactured home more affordable. Assuming that you meet the criteria to qualify for these programs, you can borrow from mortgage lenders who get a repayment guarantee from the U.S. government—if you don’t repay the loan, the government will step in and pay the lender.

Government-backed loan programs are probably your best options for borrowing, but not all mobile and manufactured homes will qualify.

Two Types of FHA Loans

FHA loans are insured by the Federal Housing Administration. They are especially popular because they feature low down payments, fixed interest rates, and consumer-friendly rules.

Several criteria must be met in order to be eligible for an FHA loan: The home must have been built after June 15, 1976. It must comply with the HUD Code and meet other local requirements. Modifications to the home can bring it out of compliance. Each section of the home must have the red Certification Label (or HUD Label) attached.

There are two FHA programs available for owners of manufactured homes.

FHA Title II Loans

These include the popular 203(b) loan, which is also used for site-built homes. They allow buyers to make down payments of as little as 3.5%. You’ll pay an upfront mortgage insurance premium, however, as well as ongoing mortgage insurance with each monthly payment. You need decent credit scores to qualify for an FHA loan, but your credit doesn’t have to be perfect. You can use gifted money to fund your down payment and closing costs, and you can even have the seller help out with those costs.

Title II loans are real estate loans, so you’ll have to purchase the land and the home together, and the home must be permanently installed on an approved foundation system. Loan terms can be as long as 30 years.

FHA Title I Loans

These are available for personal property, which is useful when you won’t own the land upon which your home sits. Your lease agreement must meet FHA guidelines, however, if you're planning to place the home on a rental site. Required down payments can be as low as 5%, but that requirement can vary from lender to lender, and it depends on your credit score.

Additional requirements for Title I loans include that the home must be your primary residence, and the installation site must include sewer and water service. Brand-new manufactured homes must include a one-year warranty, and a HUD-approved appraiser must inspect the lot. Title I loans can also be used to buy a lot and a home together. Maximum loan amounts are lower than maximums on Title II loans, and the loan terms are shorter. The maximum repayment term is 20 years for a single-wide home and lot.

Department of Veterans Affairs (VA) Loans

VA loans are available to service members and veterans, and they can be used for manufactured and modular houses. They are particularly appealing because they allow you to buy with no money down and no monthly mortgage insurance, assuming that the lender agrees, and you meet credit and income requirements. But skipping the down payment means that you’ll have higher monthly payments and you’ll pay more in interest over the course of the term. Requirements for a VA loan on a manufactured home include:

• The home must be permanently attached to a foundation.
• You must buy the home together with the land it sits on, and you must title the home as real property.
• The home must be a primary residence, not a second home or an investment property.
• The home must meet the HUD Code and have the HUD Labels attached.

Where To Borrow

As with any loan, it pays to shop among several different lenders. Carefully compare interest rates, features, closing costs, and other fees. The type of loan and the lender you work with can be especially important with mobile home loans. You have a few options for finding a lender.

Retailers

Builders that sell manufactured homes typically arrange financing to make it easier for customers to purchase. In some cases, your builder’s relationships might be your only options for funding when you're purchasing a new home. Ask your builder for a list of several other non-affiliated lenders, too.

Specialized Lenders

Several mortgage lenders specialize in loans for mobile and manufactured homes, and land as well, if necessary. Specialized lenders are more familiar with the aspects of manufactured home purchases, so they’re more willing to take applications for these loans.

You’ll most likely need to work with a lender focused on the manufactured home market if you don't own the land or won't be permanently attaching the home to a foundation system. This type of lender would also be best if you're buying a home that isn't brand new or one that has had modifications done, or if you want to refinance an existing manufactured home debt.

Standard Mortgage Lenders

If you’re buying both a home and the land it sits on, and if the home is permanently installed on a foundation system, you’ll have an easier time borrowing with a standard mortgage lender. Many local banks, credit unions, and mortgage brokers can accommodate these loans.

Different Lenders, Different Rules

Although some of the loans described above are backed by the U.S. government, lenders are still allowed to set rules that are more restrictive than the government guidelines. Those “overlays” can prevent you from borrowing, but other banks might use different rules. It's another reason why shopping around can pay—you need to find a lender with competitive costs, and you need to find a lender who will accommodate your needs.

Buying a home might be the largest investment you make in your life, but manufactured homes are typically more affordable than site-built homes. They can make homeownership accessible, especially for consumers with lower incomes and those who live in rural areas where contractors and materials are not readily available.

Frequently Asked Questions (FAQs)