Friday, October 5, 2018

Can you get a Mobile Home Loan?

Can you get a Mobile Home Loan?
People get mobile home loans every day. But how cheaply you can borrow, and sometimes whether you can get one at all, will depend mainly on three things:

1. Your creditworthiness – What your credit score is, and how easily you can afford to make payments.

2. Whether you own the land (lot) on which the home is (or will be) located or will be leasing or renting that land.

3. The category, age, and condition of the home you are buying.

Those factors will decide the type of loan for which you are eligible, most commonly a mortgage or a personal (also known as a “chattel”) loan.

Leasing vs Owning Mobile Home Land

Whether you lease or own the land your home is on may not be your choice. You may select a particular park because it is handy for work, local schools, or something else you need to be close to, and that park may not sell lots – or you may not be able to afford one.

But, if you do not own the land, that’s likely to limit your financing options. It is typically much more difficult to find a lender that will give you a mortgage to buy your home on a leased lot. And that means there is a high probability you will have to take out a chattel loan for your purchase.

That matters. Federal regulator the Consumer Financial Protection Bureau (CFPB) calculated a few years ago that a chattel loan on one of these mobile/manufactured homes is typically more or much more expensive than a mortgage. In fact, it reckons they are typically between 50 and 500 basis points more expensive. What does that mean? Well, as an example, if you were eligible for a mortgage rate of 4 percent, you would probably pay between 4.5 percent and 9 percent for a personal/chattel loan. Today, in fact, those numbers may be optimistic. And that could add many thousands of dollars to your total cost of borrowing.

This may be why the Housing Assistance Council found that, in 2013, 59 percent of manufactured homes were being financed with loans that carried high interest rates. That compared with just 7 percent of traditional single-family homes.

You Choose

Chattels are things you own that are not real estate. But you can designate your mobile home on land you own as a chattel or “real property” (real estate), and borrow accordingly. It is up to you.

And, once designated, you or a future buyer can change your minds, switching from chattel loan to mortgage and back again.

Manufactured Home Loans for Land You Own

So far, we’ve talked about mobile homes, but really this article is about “manufactured” homes, which you could argue are a subgroup of mobile homes. Since 1974, nearly all new mobile homes have been manufactured ones. The latter comply with construction and safety regulations administered by the U.S. Department of Housing and Urban Development (HUD). If yours or the one you are buying is a manufactured home dating from 1976 or thereafter, it should have a red metal HUD tag on its exterior and a paper HUD certificate somewhere on its interior. A lack of a tag or certificate will stop you getting a mortgage on your home, though, you may be able to apply to various bodies for replacements, if eligible.

How Much?

The cost of a manufactured home varies hugely, depending on the age and condition of the unit, as well as how fancy it is. And how fancy it is will also have a big impact on how much you have to pay for a brand new home.

So knowing the average cost of a new manufactured home is helpful only as a starting guide. But, for your information, that average was $71,700 in November 2016, according to the U.S. Census Bureau. If you are buying your own lot, you need to add the cost of that.

Your Loan

So you can pay a tidy sum for a manufactured home and lot, though, these are often only a fraction of the cost of a traditionally constructed house or condo. That high cost makes choosing a low-interest mortgage, rather than a high-interest chattel loan, especially desirable.

And yet a 2014 report from the CFPB said:

Manufactured-home owners that own the land their home sits on are eligible to take out mortgages to finance the purchase of their manufactured home. Of those homeowners, the Bureau estimates about two-thirds financed their homes with chattel loans, which are more likely than mortgages to have high interest rates.

Meanwhile, that high amount you are borrowing also makes shopping around for the best mortgage deal very worthwhile. Be sure to get quotes from multiple mortgage lenders before committing to anything. Even a small difference in interest rates can make a big difference in what you end up paying when you are borrowing a lot of money over a long period.

How much you can borrow (and whether your application is approved at all) will partly depend on you. Lenders will want to be sure:

- You can afford the loan – That you have sufficient income to make payments and don’t have too many other debts.

- You are a responsible borrower – You have a decent credit score. Find out your credit score and how to improve it using the LendingTree credit score service, which is 100 percent free.

- You have an appropriate down payment – At least 10-20 percent of the appraised value of the home and lot.

Your New Home

The lender will also want to make sure the home itself complies with its standards. Different lenders have different requirements, but the following are common:

- Built after June 15, 1976.

- Minimum 600 square feet of living space.

- At least 12 feet wide.

- Wheels, axle, and hitch removed.

- Unit permanently affixed to the site.

- Anchoring of unit to site compliant with regulations.

- Permanent foundation compliant with manufacturer’s code or qualified engineer’s plans.

- Designation as real property.

Those are the minimum requirements specified by Freddie Mac, and individual lenders may have more, fewer, or different criteria.

Mobile Home Loans for Leased Land

If you are leasing your land, it is less likely you will be able to get a mortgage. However, Federal Housing Administration (FHA) Title 1 loans may be available to those with leased plots, providing that lease is for three years or longer, and the minimum notice period is six months. Learn more at HUD’s website.

If a Title 1 mortgage does not work out – and assuming you cannot pay cash – you will need to seek out a good deal for a chattel/personal loan. Those buying on a park may get a sales pitch from a representative that includes financing options. You should be ready to resist pressure to sign up immediately for such a loan.

Shop Around

Of course, it is possible to get a great financing deal from a park owner, just as it is possible to get a good auto loan from a car dealership. But many (perhaps most) such sources offer significantly more expensive loans than you can find elsewhere.

So be sure to shop around. Get multiple quotes for personal loans from a variety of sources, including online, banks, credit unions, lenders that specialize in mobile home loans, and any not-for-profit lenders that operate in your area. If, in the end, it turns out that the park’s finance package is the best deal, you can still go with it. But at least you will know you are not getting ripped off.

Again, your credit score is likely to play a big part in determining how low an interest rate you will be offered. Someone with a great score might get a rate of around 6 percent, but if yours is below average you might pay 10 percent or even more.