Would you like to obtain a loan for a mobile home? You may be surprised to learn that there are financing options for non-single-family residences. Here’s what you need to know.
The different types of mobile homes
Your property type holds all the cards when it comes to whether or not you will be able to secure competitive loan terms. (Your financing will also depend on your credit score, with good ones qualifying you for better rates. You can see how your credit is doing by viewing your two free credit scores each month on Credit.com.) To get started, you must have the earth. If you own the structure, but not the land, your options become very limited and dear.
The classic scenario is that you own a unit in a mobile home park where one entity owns land and everyone who resides in the complex pays a housing obligation called “space rent”. Bank lenders view this scenario as a riskier type of loan. And most won’t try it, although there are a few exceptions.
Other financing scenarios in this space include buying manufactured homes or modular/prefab homes.
If you are looking to buy a prefabricated house
Manufactured homes are purchased from a dealership and transported on a flatbed truck to the final destination and secured to the ground with a permanent foundation. The key here is that the property has already been fully built elsewhere, then simply moved and then attached.
Another unique way to identify a manufactured home is by its Form 433A – this is a form filed with the county signifying that the property is on a permanent basis. These properties also have HUD tags, which further confirms that the property is well made.
If you are looking for financing for this type of property, be aware that your options will be limited when the manufactured home is not yet attached to the land. The lender is much more likely to finance properties that are already attached to the land i.e. house and land transfers when selling when buying the house.
Fannie Mae and Freddie Mac do conventional loans on manufactured homes – if you can find a lender who will. More lenders will finance this type of property with a loan insured by the Federal Housing Administration, because the FHA is much more lenient in its underwriting standards and the lender has much less risk of redemption (a situation where a new loan goes bad and the original lender is forced to repurchase the bad loan for a large loss). FHA loans provide more insurance against loan risk, making FHA a much more likely financing vehicle for manufactured home transactions. Here are four unique FHA requirements for manufactured homes:
- The property cannot be in a flood zone.
- The structure of the house cannot have been moved before.
- The structure must have been built after 1976.
- Mortgage insurance and impoundment for taxes and insurance apply (regardless of down payment).
If you are looking to buy a modular or prefab home
Modular homes are built on the site of the property with a permanent foundation. These homes don’t have HUD tags — or the heavy lending restrictions, in general, that apply to manufactured homes. Financing options for modular homes are similar to single family home options.
If you are looking to buy one of these unique property types, make sure you are pre-approved from the outset and provide all the details to your lender. The little undisclosed details are what make home transactions go wrong.
Don’t assume that a single property type other than a 1-4 unit single family home will automatically be a slam-dunk. Not sure if your property type is unique? It’s always best to provide all relevant information to your lender and real estate agent as early in the process as possible.
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