The tightening of mortgage-lending standards since the financial crisis has made the goal of home ownership tougher for the average borrower. And despite their modest cost, it can be even harder to qualify for a mortgage for a manufactured home. Fewer banks are in the business of providing loans for manufactured homes – otherwise known as mobile homes – which are built off-site and affixed to a permanent chassis. As a result, would-be homeowners simply don’t have as many financing options.
Fortunately, those interested in a manufactured home have some options if they don’t meet the standard for a conventional mortgage. One alternative is a Federal Housing Administration loan, which can be used to cover the home itself, a suitable lot on which to build it or both.
With an FHA mortgage, the government insures a loan made to you by a private lender. So 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 benefit by paying both an upfront premium and an annual premium on top of their normal loan amount, making these loans a bit more expensive than other loans. But if a government-insured loan is your only way of moving into a new home, the extra cost may be worth it.
Not every mobile home will meet the standards for an FHA loan. The home has to be built after June 15, 1976. So 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 certain standards relating to borrower eligibility as well. You must have sufficient money to make the down payment and prove that you have enough funds left over after other expenses to handle the monthly mortgage. Also, you must use the mobile home as your primary residence.
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 2018, the most you can borrow is $93,000 for the home and lot combination. However, in some high-cost areas, you can borrow up to 85% of the cost the home and land. If you’re not sure whether your area falls into this category, call the U.S. Department of Housing and Urban Development Manufactured Housing Headquarters at (800) 927-2891.
The maximum loan duration is 20 years for a mobile home or a single-section home and lot combination and 15 years when financing just a lot. Mortgages that cover a multi-section manufactured home together with the lot can last up to 25 years.
If you have questions about the FHA program, the Department of Housing and Urban Development 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 isn’t your only option for government-insured loans. The Department of Veterans Affairs and the Department of Agriculture’s Rural Housing Service also provide mortgages to eligible borrowers. In some cases, these may represent a better path for those looking to buy a manufactured home, so it’s worth doing your research.
With low down payments and less stringent 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.