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). Many people still refer to this type of housing as a mobile home, a term that actually refers to structures built before HUD code standards were established in 1976.
But whatever you call them, one reason loan originations are so low is that people living in manufactured homes tend to be “financially vulnerable,” as the CFPB puts it – older individuals or low-income families 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 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.
- Mobile, or manufactured homes make up 6% of all occupied housing in the U.S. but a far lesser percentage of all mortgage originations.
- Mobile home occupants are often deemed to be higher credit risks due to lower incomes and assets.
- Moreover, mobile homes are often considered movable - as opposed to real estate - making them eligible for more costly chattel loans rather than traditional mortgages.
Limited Financing Options
There are only two types of manufactured home financing: a traditional mortgage and a chattel mortgage. Most people understand the traditional mortgage: find an existing home or build one, then apply for a 30-year fixed mortgage or another mortgage type and lock in a highly favorable interest rate.
However, if the manufactured home is not permanently affixed to the land on which it stands – and if the homeowner just leases the land on which the manufactured home is located – the building is considered personal property instead of real estate. Only around 15% of new manufactured homes are titled as real property. This forces nearly 85% of borrowers into a chattel loan, a category that provides far fewer protections and at much less generous terms.
When a structure is considered real estate, all the protections that come with mortgages apply. The borrower can get an FHA-insured mortgage or one backed by Fannie Mae, which also backs loans on manufactured housing.
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 are likely to be available at more favorable rates that chattel mortgages.
A chattel loan allows for a mortgage on a property that is considered 'movable'. Chattel mortgages are loan arrangements in which an item of 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.
First and most important, chattel loans are priced much higher. 21st Mortgage Corporation, one of the largest originators of chattel loans, says that rates on manufactured homes start at 6.99%. Again, those with dinged credit can expect to see significantly higher rates.
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.
The Bottom Line
It's important to be sure to apply for the right kind of mortgage. The CFPB is concerned because at least 65% of manufactured home owners who also own their land took out a chattel loan. Some of these owners may have reasons to want a chattel loan – such as not wanting to give up control of their land – but the more likely problem is not knowing that a traditional mortgage is available to them.
If you live in a manufactured home that is permanently affixed to the land on which it's located – and if you own that land or are considering buying it – you probably qualify for a traditional mortgage, complete with interest rates that could be half that of a chattel loan. Consider both options carefully.