What Buyers Need to Know: Financing a Manufactured Home
What Buyers Need to Know: Financing a Manufactured Home
Manufactured home properties have many unique financing rules, dependent on factors like location, home foundation type, location, and property age. It’s crucial for buyers to understand these specialized standards and regulations before purchasing a manufactured home, in order to avoid an increasingly frustrating and sometimes expensive process.
Why the Financing is Different
Manufactured homes tend to fall under one of the following two categories: real property or personal property. Real property refers to more traditional real estate, and homes attached to sold land, whereas personal property refers to homes built in a factory and titled through the DMV, rather than being sold as a real estate. The difference tends to be based on whether the home is on leased or sold land, and how it was built. Financing and lending options rely on this distinction, as not all lenders offer loans on manufactured properties.
Modular homes are also subject to complicated financing. Modular homes, unlike manufactured homes, are built to satisfy local and state codes, similarly to traditional real estate. Unlike traditional homes, modular homes tend to be delivered in pieces from factories and assembled onto a permanent foundation. Typically, they are titled like traditional real estate once put together, and tend to appreciate like a site built home would.
Lenders tend to evaluate and base their valuation and financing decisions on the foundation type and location of the home, whether or not the home is private or part of a park, the age and condition of the property, and the title and whether or not the home is permanently attached to land.
Loans Available
There are, however, a few different types of loans available to prospective home buyers, for both manufactured and modular homes.
Conventional Loans are available to the small number of homes that qualify for them, dependent on several different components. These loans require homes to be permanently affixed to land, meet HUD code, and be classified as real property, or, for modular homes, meet local codes. This type of funding is generally desirable because of the competitive interest rates, but many manufactured properties unfortunately do not qualify.
FHA Loans are most typical for first time home buyers, as they generally have lower down payment requirements. These loans, unlike conventional, can offer financing to home only instead of home and land. To qualify for an FHA loan, properties must be HUD certified, and similarly to conventional loans, the home must qualify as real property and have a permanent foundation.
USDA Loans are offered in specific rural areas, and can offer buyers financial backing with little to no down payment. These loans don’t tend to have as many regulations on property, but USDA loans have income requirements.
Chattel Loans are some of the most popular and common loans for manufactured homes. Chattel loans are personal property loans, that use someone’s own property to borrow against. These loans typically are shorter term, have a faster approval process, though generally higher interest rates. These loans are used when homes are not attached to land that is owned.
Construction-to-permanent (C2P) Loans are a specialized loan type that modular homes can qualify for, as they are specifically designed for people building their own home. A C2P loan combines the loan for building the property as well as the mortgage loan once the project is complete, rather than buyers having to take out two separate loans. Once the buyer is approved by a lender, the lender releases the funds allocated for the project in stages called ‘draws’, as construction reaches certain milestones. Once the home is built, the loan automatically converts to a typical mortgage, and the homeowner begins making typical interest payments.
Common Financing Challenges
Often, financing for manufactured homes is more challenging because buyers run into a couple different roadblocks. One of the most common is the limited number of lenders in the field. Not every bank works with manufactured properties, which is why it’s crucial to find a lender who has experience in the field, which can be incredibly difficult.
Another challenge is the age of the home and property affects the availability of loan options. Some lenders will only work with properties over a certain age, while much older homes may only qualify for certain loan assistance. This narrows the window of time in which buyers can receive support financing their home, and limits market options.
Title issues also pose a big challenge to the sales of manufactured homes, and can seriously delay the financing process. Since manufactured homes do not have a universal standard for titles, the specific classification of each property can pose individual challenges, as property with DMV titles or personal property titles might not qualify for the same insurance.
One of the biggest setbacks to the entire manufactured home industry is the lack of available data. Specifically, though, when it comes to financing, the limited availability of comparable home sales makes the job of valuators and appraisers much more challenging. Since this makes the market more of a niche, it can be hard to find appraisers with specific experience, which can slow down the loan approval process as well as valuation.
Manufactured homes offer one of the most affordable paths to homeownership, but the lack of data transparency can create unique financing challenges that buyers should understand up front. There are, however, more resources now to help buyers navigate this process. LotRoll can provide buyers the missing data they’re looking for, and match them with industry professionals during this specialized financing process.
