It doesn't matter if you’re planning a move to the suburbs or a rural area, purchasing a manufactured home is a cost-effective approach. These homes are prefabricated and built in a factory, and then moved to a site. Manufactured homes are increasing in popularity and are often cheaper than site built homes. It’s a cost-effective approach whether you’re buying brand new or purchasing a resale property, but there are a few things you should know about manufactured home financing.
Like many homebuyers, you probably don’t have cash to purchase a property outright, so you’ll need to apply for financing.
A manufactured home may be your primary residence and offer just as much space and amenities as site built homes, but you could run into a few roadblocks in the financing department.
1. Some banks do not offer traditional financing for manufactured homes
Some manufactured homes are one-level and look similar to site built ranch homes. These properties are built in accordance with standards set by HUD, so you’re getting a property that’s safe for you and your family. But despite manufactured homes providing a secure dwelling, some banks do not offer mortgage financing for these types of homes, or they’ll only offer traditional financing under certain conditions.
With a site built home, buyers finance both the house and the land. This isn’t necessarily the case with a manufactured home. A bank may offer traditional mortgage financing for a manufactured home if you need funds to purchase both the home and the land. But if you’re renting the lot and only need financing for the home, your only option may be a chattel loan, which is a personal property loan that can be used to purchase a manufactured home.
Another option is securing financing through a manufactured home sales dealer. If you prefer a traditional loan and your personal bank doesn’t offer financing, you may have better luck working with a small mortgage company or a credit union. Sometimes, it’s easier to get financing for a doublewide than a single-wide.
2. Manufactured home loans have shorter terms
While it’s not usual to finance a site built home for up to 30 years, manufactured homes may have shorter terms, depending on whether it’s titled as real estate property. If you’re financing both the home and the land and you receive a traditional loan, you can take advantage of a traditional 30-year term. But if you have a chattel loan, the typical repayment period is 15 to 20 years.
3. Some lenders have a 15-year rule
The financing rules for manufactured homes vary widely from bank to bank, hence the importance of comparison shopping. With a site built home, a bank will lend money regardless of the property’s age. It’s often a different story with manufactured homes.
Some lenders have a 15-year rule, and with this rule, manufactured homes more than 15 years old don’t qualify for financing. This may seem unfair or unreasonable (especially since some manufactured homes appreciate in value), but it’s a guideline for many financial institutions. Fortunately, it isn’t a hard or fast rule. Shop around and you might find banks willing to finance a much older manufactured home, maybe up to 20 years old. But getting this type of financing will likely require a higher down payment and a much shorter term.
4. Low down payment option
Regardless of whether you use a mortgage loan or a chattel loan to purchase your manufactured home, the typical down payment is between 5 percent and 20 percent. The good news is that you can purchase a manufactured home with less cash. If you’re financing the property and land, you may qualify for a USDA mortgage if the home’s location is in an eligible rural area. Ask your mortgage lender for details. You may qualify for 100% financing with limited out-of-pocket cash for closing.
5. Some manufactured home loans have higher interest rates
Buying a manufactured home can be cheaper than buying a site built home. But unfortunately, chattel loans carry a higher risk than traditional mortgage loans, and if you finance a manufactured home with this type of loan you’ll pay a higher interest rate. Your interest rate is based on different factors such as the size of your down payment and your credit score. Before choosing a lender for your loan, contact multiple lenders and get a free no-obligation quote. You can compare borrowing cost among different financial institutions and a manufactured home sales company to see where you can reap the most savings.