Alternative forms of housing have always been an attractive option for those who live in remote areas that can be hard to build in, who live nomadic lifestyles, or who have difficulty qualifying for high-dollar conventional loans. Mobile homes have become increasingly popular with both the advent of the tiny house movement and skyrocketing housing prices keeping many from achieving traditional homeownership.
- Mobile homes, manufactured homes, and modular homes have multiple financing options available.
- Financing can be available through the manufacturer, local credit unions, or specialty lenders.
- Traditional loan options like U.S. Department of Veterans Affairs (VA) loans, U.S. Department of Agriculture (USDA) loans, and Federal Housing Administration (FHA) loans are available on manufactured homes as long as the homes are affixed to land that you own or buy at the same time.
- Many borrowers take out more expensive chattel loans when they qualify for other financing with better loan terms.
Types of Mobile Homes
The term “mobile home” gets applied to many types of homes that aren’t technically mobile homes. There are two main other subcategories: manufactured homes and modular homes.
Truly mobile homes are mobile. Tiny houses, travel trailers in which people live, and converted vans are all technically mobile homes. Structures that were factory-built before U.S. Department of Housing and Urban Development (HUD) code standards were established in 1976 are mobile homes. Manufactured homes built after standards were introduced are just manufactured homes as far as HUD and most lenders are concerned, but people still refer to them as mobile homes.
Manufactured homes are the ones most commonly referred to as mobile homes. They are homes that are assembled in a factory and then placed on a lot. They are usually permanently affixed to one spot using some sort of foundation, most commonly a slab. While manufactured homes can technically be moved from one place to another, it is frequently cost prohibitive to do so.
If you’ve ever been stuck in traffic behind what looks like a house cut in half, then you’ve seen a modular home. Modular homes are still homes that are manufactured in other places and then assembled on site. However, these tend to be much bigger versions than the standard manufactured home and often include second stories, garages, covered patios—and, in some cases, basements.
Statistics on Manufactured Homes
Manufactured homes account for 6% of all occupied housing but a much smaller percentage of home loan originations, according to a report issued by the Consumer Financial Protection Bureau (CFPB). Whatever you call them, one reason why loan originations are so low is that people living in manufactured homes tend to be “financially vulnerable,” as the CFPB puts it—older adults or people whose self-reported incomes were in the lowest income bracket, and who tend to be offered less-than-favorable rates and terms on any type of loan.
According to the CFPB, about 32% of households living in a manufactured home are headed by a retiree. Their median income is half that of other families, and they have about one-quarter of the median net worth of other households. Also, manufactured homes aren’t always eligible for a traditional mortgage on any terms because the prospective homeowner doesn’t own the land on which they are located.
Before taking out a loan on a manufactured home, it’s important to know what your options are and make sure that you apply for the most favorable type of financing. Never accept a loan offer before researching your choices, especially if you’re putting the home on a piece of property that you own.
Limited Financing Options
As the manufactured home industry has evolved over the decades, more options have become available. There were originally only two types of manufactured home financing: a traditional mortgage and a chattel mortgage. Traditional mortgage options have built-in protections around foreclosures, closing disclosures on loan terms, and so on. They also offer much more favorable interest rates.
If the manufactured home is not permanently affixed to the land on which it is located, or if the homeowner just leases the land on which the manufactured home is located, then the home doesn’t qualify for a traditional mortgage. In this situation, the manufactured home is considered personal property instead of real estate.
If a borrower can’t get a traditional mortgage, they either can seek out financing through the manufacturer of the home—which is an option that wasn’t historically available—or will have to get a chattel loan through a specialty lender.
When a structure is considered real estate, all of the protections that come with mortgages apply. The borrower can get a Federal Housing Administration (FHA)-insured mortgage or one backed by Fannie Mae, which also backs loans on manufactured housing. U.S. Department of Veterans Affairs (VA) loans and U.S. Department of Agriculture (USDA) rural development loans also can be available; these can allow you to put as little as $0 down on a manufactured home and the land on which it will go.
The loan will be covered by consumer protection laws that apply to traditional mortgages, including various state foreclosure and repossession laws that don’t apply to property loans. Mortgage loans also have much lower interest rates than chattel mortgages, which tend to start at 5.99% for well-qualified borrowers.
A chattel loan allows for a mortgage on a property that is considered movable. Chattel mortgages are loan arrangements in which an item of the movable personal property acts as security for a loan. The movable property, or chattel, guarantees the loan, and the lender holds an interest in it. Mobile homes, as well as airplanes, yachts, houseboats, and certain farm equipment, may qualify for chattel mortgages.
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First and most important, chattel loans are priced much higher. 21st Mortgage Corp., one of the largest originators of chattel loans, says that rates on manufactured homes start at 5.99%. Again, those with dinged credit can expect to see significantly higher rates. A mortgage calculator can show you the impact of different rates on your monthly payment.
Chattel loans are generally for shorter periods of time, which lowers the total amount of interest paid. Even so, 21st Mortgage offers terms as far out as 23 years. Finally, chattel loans often have lower closing costs, and the time it takes to close on the loan is often much shorter.
In 2013, 86% of borrowers with a manufactured home used a chattel loan, despite 65% of them owning the land on which they live, which would have qualified them for a traditional mortgage. Fortunately, the percentage of borrowers with this loan type improved dramatically, according to a CFPB report from 2021 that lists the rate of borrowers with chattel loans at 42%.
Can I get down payment assistance on a mobile home?
Many states have down payment assistance programs. In several states, they can assist with a down payment on a mobile home or the land on which it will go. The U.S. Department of Housing and Urban Development (HUD) keeps a list of active programs by state.
Can I get a personal loan for a mobile home?
Yes. A personal loan can be used to pay for a mobile home, but this is not generally advisable. Most personal loans have significantly higher interest rates than the rates available for mortgages or even chattel loans.
What is the minimum credit score required for a mobile home loan?
If you can afford a 10% down payment, then the minimum credit score required for a Federal Housing Administration (FHA) loan on a mobile home is 500. If you have less money down or will be seeking a conventional mortgage or chattel loan, then your credit score will need to be at least 580.
The Bottom Line
Mortgages are available on all types of mobile homes. To qualify for a traditional mortgage, the home has to be permanently affixed to land that you own. Many borrowers miss this detail and end up stuck in more expensive chattel mortgages with no foreclosure protections. Traditional mortgages can also cover the purchase of the land on which the manufactured home will go, so make sure to compare options before signing on to a chattel loan.