Mobile homes might be considered “affordable housing” but few people really have the money lying around to buy one outright. This puts many people off from buying a mobile home because of the perception that there aren’t financing options for mobile homes, especially financing for used mobile homes.
However, there are actually plenty of options to finance your mobile home and to do so affordably. We also realize that mortgages and loans with all their terminology and numbers can be a head-spinning topic. In this guide, we’ll try and keep it as simple as possible while still providing you with all the most important information you need.
What you need to know about mobile home loans
What to look for in a mobile home loan?
- Terms: Loans can come in different terms from 15 years all the way up to 25 years. The shorter the term, the more you pay per month.
- Downpayment: A lump sum you pay towards the full value of your loan in the beginning. Down payments range from 5 to 25%. The more you pay, the smaller your installments will be and you might also receive a more favorable interest rate.
- Interest rate: We all know and fear the dreaded interest rate. Rates for mobile homes range from about 3% for backed loans to 10% for unfavorable chattel or conventional loans.
- Ownership: Chattel loans work a bit differently where the lender owns the property until the repayment is done. This will affect your rights. Seller financing arrangements might have similar concerns.
- Closing costs: These are the extra-legal and application fees that are applicable when you apply for the loan.
- Real estate status: You can convert a mobile home to real estate. If you’ve done this, it will work in your favor for almost all types of loans and you’ll open up new loan opportunities.
Requirements for a loan
On the home
- Age: The age of the home will play a big role in who will be willing to finance your loan. Be aware that all homes, without exception, made before 1976 are non-HUD-compliant and therefore ineligible for all types of financing except chattel mortgages or seller financing.
- Condition: The most important factor when it comes to the condition of the home is whether it’s HUD-complaint. However, the overall condition and quality will also play a role.
- Number of times moved: Homes moved two or more times usually don’t qualify for any type of financing. That’s because moving a mobile home is very risky and chances are multiple moves have already affected the home’s structure.
- Type of home: The model and size of the home will also play a roll. It’s usually very challenging to finance a single-wide whereas double-wides are the easiest.
- Use of residence: Many lenders will only give you a loan if you will use it as your primary residence. This is because the home is under more risk when used by anyone else than the owner.
- Credit score: The credit score you need to qualify depends on the lender and loan size. A better score will almost always qualify for a better interest rate and longer term. Usually, the minimum credit score you need to qualify is about 580, with 700 being an excellent score.
- Income: Your income directly affects your ability to repay a loan via installments so it’s usually harder (or impossible) for those without a fixed income to qualify. You’re also unlikely to qualify if the loan makes up more than 30 or 40% of your salary.
- Current loans: Many lenders flat-out refuse to give a second or third home loan. Your income will also need to be high enough so that your multiple loans together make up less than the maximum percentage of your income.
- Assets and liabilities: A lender will most likely ask you to provide a list of your biggest assets and liabilities. This includes everything from motor vehicles to other loans.
What financing options are available?
Let’s look at your financing option if you need financing to purchase your mobile home loan. If you don’t know anything about how financing works, we’ll also give you a quick crash course on the most important elements of a loan or mortgage.
A chattel mortgage is like a loan that’s secured by an item that’s considered to be ‘movable personal property’. If your mobile home has not been converted to real estate, then it’s still by definition a piece of movable personal property.
There are a few important legal distinctions between a chattel and conventional mortgage. The most important is that unlike a conventional mortgage where the borrower “owns” the property and the lender takes possession of it should payments default, with a chattel mortgage the lender owns the property until the loan is satisfied. This means that you have less protection when it comes to protecting your ownership should you falter in repaying your loan.
Because the movable personal property is understandably seen as being less “fixed” and more vulnerable than a piece of real estate, they are still viewed as more risky loans by lenders. That’s why you can generally expect higher interest rates between 6 and 10% and shorter terms.
Downpayments typically start at around 5%. However, the higher interest rates and shorter terms mean you’ll probably want to put down as much as possible to reduce your principle.
An FHA-backed loan is just like a conventional mortgage. The main difference is that the FHA (Federal Housing Association) offers to repay the rest of your loan in the case that you default on your payments. Lenders of mobile home loans usually include this as an option for their mortgage products and will help you apply for the FHA concession.
As the FHA effectively “insures” your loan, lenders feel much more confident they’ll get their money back. This translates to much lower interest rates and better overall terms. Understandably, you’ll need to meet the FHA’s requirements too to receive their backing. This means you’re in for two application processes.
As a federal institute, the FHA puts a lot of emphasis on the HUD-compliance of your home. It’s also important that your home is not located in a flood zone and is located in the correct weather zone. FHA loans can be used on a mortgage for just the home or the home and the lot. However, if you don’t own the lot, you’ll need at least a 3-year lease agreement with a 180-day notice period.
You can get very generous terms such as a down payment below 5%. Interest rates can also be as low as 3% or less. However, they only back loans with a maximum term of 25 years and up to a certain value depending on $92,904 depending on whether it includes the lot.
A VA (Veteran Affairs)-backed loan is just like an FHA loan, only it’s insured by the Department of Veteran Affairs. These loans are provided to qualifying veterans to ensure they can find accommodation that allows them to live with dignity and to reward them for their invaluable service.
VA loans come with the same perks as FHA loans. However, your financing terms can be even more generous with some lenders offering 100% LTV which means no down payments. Interest rates can be equally low.
Just like the FHA, the DVA will also have their own requirements for eligibility. These will include your credit score as well as your Certificate of Eligibility which proves your status as a veteran.
It might surprise you to know that even conventional real estate loans are available for manufactured homes. However, they are not easy to get.
First of all, your manufactured home will need to be converted to and registered as real estate which isn’t an easy (or cheap) process. Secondly, there still aren’t many conventional lenders who are willing or able to provide this type of financing for a mobile home.
Even if your property is now considered real estate, lenders will still see it as a higher-risk investment. This means that you won’t be able to get the best terms as if you were applying with actual real estate. There will also be stricter requirements on your own financial capacity. You will definitely need to make a down payment of at least 5% which could be as much as 25%.
Another caveat is that you’ll find it even harder than usual to apply for a loan if you have anything other than a double wide. Like always, your chances of getting the loan and your interest will depend on your credit score and the lender.
There are more ways than one to finance a mobile home. One avenue many people forget about is seller financing. It’s impossible to give you concrete numbers on seller financing as the terms depend upon you negotiating with the seller of the used home.
However, what makes this option so attractive is that you won’t be dealing with the bureaucracy, paperwork, and strict, blanket requirements of conventional lenders or banks. This is why it’s something you should definitely explore when buying a used mobile home where financing rules can be even more unforgiving.
There are two main forms of seller financing, although there are near limitless possibilities for agreements you can come to between yourselves. These are:
- Rent to own: When you rent to own a home, you pay a higher than normal monthly rent which goes towards effectively starting to pay off the home. Usually, there is an option to pay the entire remaining lump sum some time in the future. Rent can also be factored in, however, this could make the payment that already consists of the rent plus an installment unaffordable. If you can no longer make your payments, there is some grey area as to whether you get your installment back.
- Seller loan: Via this channel, you come to a more conventional agreement with the seller where they act as the lender. The main difference is that they already own the property. This type of loan will usually look a lot like a mortgage with a down payment, monthly installments, interest, and a term. The seller can also take back ownership of the house if you can no longer pay.
As you can guess, it’s important that both parties have a legal representative when making a deal like this. Otherwise, it could get very messy and dubious at best when it comes to how legally binding the agreement is on either party. However, it can be a great way to find a solution that suits both the seller and the buyer of a used home where traditional financing isn’t an option.
Mobile home financing FAQ
Can you finance the home and lot?
Yes! Except for the chattel mortgage, you can finance both the land and the home in a single mortgage. Despite being a higher amount, this can actually work in your favor since land is a fixed asset and is considered a safer and more solid investment than a mobile home.
Can I finance a mobile home in a park/without owning the land?
Yes! The majority of mobile homes are located within mobile home parks. Lenders and backers are aware of this and make provision for homes on land owned by someone else. However, they usually require that you have a long lease of a few years as well as a long notice period.
Can I finance a mobile home renovation/upgrade?
Yes! Depending on your mortgage product, you may even be able to open lines of equity on your own home in order to make expensive renovations and upgrades. However, you’ll need to submit your plans as anything that will affect your HUD compliance, zoning, etc. will not be allowed.
Can I get good interest rates?
Maybe! We’re not going to lie: you’ll almost always get a better interest rate and terms with conventional real estate loan. However, with the insurance of a backer like the FHA or DVA, you’ll be able to get an extremely favorable loan with interest rates as low as 3%.
What basic requirements do I need for financing?
These are the basic things you need to stand the best chance of qualifying for a loan:
- A HUD-compliant mobile loan
- A privately-owned lot or a long lease agreement
- A good credit score of 600 or higher
- Enough money for at least a 5% down payment
- An income of which your installment would only be 30% or less, preferably from a fixed source
Where can I find mobile home financing?
There are plenty of lenders that offer at least some form of mobile home financing. Some of the most notable examples are Fannie Mae, Cascade Loans, Freddie Mac, and NLC loans.
Buy a mobile home at a rate you can afford
So, as you can see, there are plenty of avenues open to you to buy your new home without having to break the bank. However, in order to qualify for used mobile home financing, and to get a good deal, make sure that you’re comfortable with the basics and that you understand the requirements, conditions, etc. Additionally, you can prepare yourself for this big step by knowing what to consider when buying a used mobile home in a park.