What Is a Manufactured Home Mortgage?

The tightening of mortgage-lending standards since the financial crisis of 2007 and 2008 has made the goal of owning a home more challenging for the average borrower. Despite their modest cost, it can be even harder to qualify for a manufactured home mortgage. Manufactured homes, better known as mobile homes, are built off-site and affixed to a permanent chassis. Fewer banks are now in the business of providing loans for manufactured homes. As a result, would-be homeowners simply don’t have as many financing options.

Key Takeaways:

  • A Federal Housing Administration (FHA) loan is an option for those seeking to buy a manufactured home and who cannot qualify for a conventional mortgage.
  • The government insures an FHA mortgage to protect the lender in case of default.
  • FHA loans are more expensive because homeowners must pay an upfront premium and an annual premium on top of the typical loan amount.
  • As of 2020, $93,000 is the most that can be borrowed through the FHA for a manufactured home and lot.

Understanding Manufactured Home Loans

Fortunately, those interested in a manufactured home have some options if they don't meet conventional mortgage standards. One alternative is a Federal Housing Administration (FHA) loan, which can be used to cover the home itself, a suitable lot to build it on, or both.

With an FHA mortgage, the government insures a loan provided by a private lender. If you default on your payments, the lender has the assurance that Uncle Sam will reimburse it for all or part of its losses.

The good news is that FHA-approved mortgage providers are willing to take on borrowers who have a slightly higher risk profile. But there is a catch. Homeowners fund the insurance and pay both an upfront premium and an annual premium on top of the typical loan amount. That makes these loans a bit more expensive than other loans. If a government-insured loan is your only way of moving into a new home, the extra cost may be worth it.

The Requirements

Not every mobile home will meet the standards for an FHA loan. The house must have been built after June 15, 1976. Even if you modify an older structure to meet current regulations, you won't be able to get a loan through the program.

Moreover, the residence must adhere to Model Manufactured Home Installation (MMHI) standards and comply with local and state guidelines. A red label on the exterior of each transportable section indicates that it meets MMHI requirements. The manufactured home floor space must be at least 400 square feet and be classified as real estate, meaning it has a permanent foundation.

The government maintains standards relating to borrower eligibility also. First, you must have sufficient money to make the down payment. You also need to prove that you have enough funds left over after other expenses to handle the monthly mortgage. Finally, you must use the mobile home as your primary residence.

About FHA loans

Most mobile homes are sold through local retailers and dealers, which are typically good sources of referrals for both conventional and FHA mortgage providers.

As with other FHA mortgages, there are caps on the loan amount for manufactured homes. As of 2020, the most you can borrow is about $93,000  for the home and lot together. However, in some high-cost areas, you can borrow up to 85% of the home and land cost. If you're not sure if your location falls into this category, call the U.S. Department of Housing and Urban Development (HUD) Manufactured Housing Division at (800) 927-2891.

The maximum loan duration is 20 years for a mobile home or a single-section home and a lot. However, it falls to 15 years when financing just a lot. On the other hand, mortgages that cover a multi-section manufactured home and lot can last up to 25 years.

Understanding Your Options

Do you have questions about the FHA program? If you do, HUD operates a voice-assisted hotline that can refer you to local counseling organizations. These housing agencies can help you better understand your options. The 24-hour HUD clearinghouse can be reached at (800) 569-4287, or you can search online for a HUD housing counseling agency.

Keep in mind that the FHA is not your only option for government-insured loans. You may also be eligible for a loan from the Department of Veterans Affairs (VA loan) or the Department of Agriculture’s Rural Housing Service (RHS). In some cases, these may be better paths for those looking to buy a manufactured home, so it’s worth doing your research.

FHA loans are good choices for many people, but be aware that you don't have to get a government-backed loan to avoid discrimination. Also, don't let outdated stereotypes about mobile-home owners discourage you from pursuing a cost-effective path to homeownership.

Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report with the Consumer Financial Protection Bureau or the U.S. Department of Housing and Urban Development (HUD).

Special Considerations

With lower down payments and credit standards than other loan programs, an FHA mortgage can be an attractive choice for mobile home buyers. Just be ready to pay a little extra each month to enjoy those benefits.