Even with fluctuations in the housing market, homes remain expensive – especially new construction. In November of 2022, the median sales price for new construction was $471,200.[1]
Alternative housing, in the form of mobile and manufactured homes, offers Americans a significantly cheaper path to homeownership. The average sales price of new manufactured homes was $86,500 in August of 2022.[2]
While most people don’t have the funds to purchase one of these homes outright, the good news is financing options are available for mobile and manufactured homes. But be warned, qualifying will likely be a challenge.
Mobile vs. Manufactured Homes
Before we dive into your mortgage options, we need to talk about definitions.
That’s because what most people call “mobile” homes are usually defined as “manufactured” homes by the government. While these terms get used interchangeably, there are important differences.
Mobile home: Constructed prior to June 15, 1976, these are prefabricated homes – meaning they were built off-site – that DO NOT need to meet new safety standards set by the U.S. Department of Housing and Urban Development (HUD).
Manufactured home: Constructed after June 15, 1976, these prefabricated homes MUST meet the safety standards set by HUD. Additionally, the structure must be at least 320 square feet and constructed on a permanent chassis.[3]
It’s important to distinguish between the two because there are more loan options available for manufactured homes. In fact, many lenders don’t offer mobile home financing at all.
Manufactured Home Financing Options
Again, there are financing options available for manufactured housing. However, it’s harder to get a loan compared to site-built homes.
27%
Less than 1 in 3 manufactured home loan applications resulted in the loan being financed.[4]
For comparison, that figure jumps to 74% for site-built homes.[4] But don’t let these figures discourage you from applying. We’ll share some common mistakes you can avoid that lead to higher denial rates.
Chattel loans
About 42% of manufactured housing loans are chattel loans.[4] A chattel loan, sometimes called a chattel mortgage, is a loan that’s used to buy moveable personal property. By definition, chattel loans don’t include the land as part of the agreement, which is a big difference from a traditional mortgage.
According to the Consumer Financial Protection Bureau (CFPB), borrowers may not know which lenders offer chattel loans. This could cause borrowers to apply to lenders that don’t offer them, which leads to higher denial rates.[4]
If you’re interested in a chattel loan, confirm that your lender offers them before submitting an application.
Retail installment contracts
According to the HUD, retail installment contracts are the most common method of financing manufactured homes.[5]
This type of financing is similar to buying a car from a dealership. You make monthly payments directly to the dealer. In this case, instead of making payments on a car, you’re making them on your home.
A retail installment contract is different from a loan. Your state may offer additional protections, such as the ability to cancel the contract a few days after completing the purchase.
Luckily, since these agreements aren’t loans, those low approval rates don’t apply here. That said, there are some steps you should take to protect yourself before pursuing this type of financing.
- Check references: It’s a good idea to look up the dealer you’re considering buying from with your local Better Business Bureau. You can also contact your state’s Attorney General’s Office or ask people you know about their experiences.
- Be careful of buy-for agreements: If the dealer requires a co-signer, make sure the home is being sold to you and not the co-signer.
- Read the contract carefully: Before signing anything, ensure your financial information is correct and the financing terms match what was discussed with the dealer.
FHA loans
The Federal Housing Administration (FHA) offers government-backed mortgages, referred to as FHA loans, which are popular with first-time home buyers. They also offer loans that are specific to manufactured homes, referred to as Title I and Title II loans.
Title I loans
These loans can be used to purchase a manufactured home, the lot it would be placed on or both when Title I loans are used in “combination.” It can also be used to make property improvements, which includes making repairs to existing manufactured homes.
Maximum loan amounts:[6]
- Manufactured home only – $69,678
- Manufactured home lot only – $23,226
- Manufactured home and lot – $92,904
Title II loans
Similar to the Title I loan, this can be used to purchase a manufactured home and the land it’s on. However, it can’t be used in mobile home parks or on leased land. Mobile homes aren’t eligible for these loans, so the home must have been constructed after July 15, 1976.
USDA loans
If you live in a rural area, you may qualify for a U.S. Department of Agriculture (USDA) loan. These loans can be used to install manufactured homes. There are income limits and location requirements, but if you meet them, you can secure a USDA loan without making a down payment.
Conventional loans
Getting a conventional loan for a manufactured or mobile home can be tricky, especially if you don’t own the land the property sits on.
The good news is Fannie Mae and Freddie Mac both offer programs to finance manufactured homes. You can get a 30-year loan with as little as 3% down, provided the property meets the eligibility requirements.
Personal loans
Because manufactured and mobile homes don’t cost as much, you might be able to afford one by taking out a personal loan. Depending on which lender you use, you could secure a loan worth up to $100,000.
But be careful, personal loans can have high-interest rates – especially if your credit score is low.
Tips for Securing Manufactured Home Financing
Regardless of which type of financing you pursue, there are ways to prepare for the process.
Know your credit score
Understanding your credit score is a critical first step in applying for any type of financing. Your credit score will determine what type of rates and terms you’re offered.
If you have a low credit score, it might be worth delaying your house hunt and working to build your credit first. A higher score could earn you better loan terms, which could save you thousands of dollars long term.
Save for a down payment
The more money you have to put down, the less you’ll owe over the life of the loan. Also, some loan types require a minimum down payment, like 3% for a conventional mortgage.
Define what you are buying
The specifics of the home you plan to buy will determine which loans you’re eligible for. The more you know about your planned purchase, the better sense you’ll have of what you can qualify for. Here are some questions to answer that can impact loan eligibility:
- Do you plan to buy the land the home will be placed on or rent a lot?
- When was the home constructed?
- What is the square footage?
- How big of a loan do you need?
Shop around
Interest rates can vary greatly between lenders. So it’s worth taking the time to shop around and compare rates. For an apples-to-apples comparison, try to compare lender rates on the same day, as they’re constantly changing.
Doing your research will also let you know what types of loans a lender offers. That way, your application won’t be rejected because you applied for a loan they don’t issue.
Is it harder to get a mortgage for a mobile home?
The short answer is yes. Regardless of whether you’re referring to mobile or manufactured homes, fewer lenders offer these types of loans than for on-site construction. The approval rates for these loans are also significantly lower.
What credit score do I need for a mobile home?
It depends. Since 620 is the minimum score for a conventional loan, that’s a good starting point. [7] It’s possible to be approved with a lower credit score, but your application will likely go through additional scrutiny, meaning you could owe a larger down payment or face higher interest rates.
What type of loan is best for a manufactured home?
If you don’t own the land beneath the home, a chattel loan might be your best option. If you plan on purchasing the land as well, you’ll have a better chance of securing a mortgage. In that case, see which loans you can qualify for (FHA, USDA, etc.) and shop lenders.
What is the longest you can finance a mobile home?
It depends on the type of loan you get. If you get a traditional mortgage, you can have a 30-year maximum loan term. If you get an FHA Title I loan, the maximum loan term is 20 years plus 32 days.[6]
Conclusion
It can be challenging to finance a manufactured home, especially if you want to secure a mortgage. Make sure to do your research beforehand, so you know what types of loans you can qualify for.
And don’t forget, most people finance their manufactured homes through the dealer, so that’s an option as well.