Buying a home is one of the biggest decisions a person will make in their lifetime. Buying ether a modular home or a manufactured home (mobile homes) can be a great option for lower-income families, first time home buyers and for anyone who want a new home feel. However, buyers may realize that financing manufactured homes is much different that financing a traditional home.
Although purchasing a manufactured home is typically a more financially friendly option compared to “stick built”, in some case such as mobile homes, financing may be more difficult than traditional home financing. Understanding how modular homes and mobile homes are financed will increase your odds of getting the best financing option for your home and family.
Modular Home Loans: If I Can Get A Mortgage, What Kind of Rate Could I Get?
Modular homes are often viewed in the same way as traditional homes or a home building project. Some financial institutions may offer more flexible terms than others, but when financing a modular home, the most common loan is a 30-year fixed rate mortgage. Why? First, understand the two types of mortgages modular home financers usually offer and how the length of the mortgages are calculated.
There are two types of mortgages you could get as a manufactured home buyer:
Fixed Rate Mortgage (FRM)
Adjustable Rate Mortgage (ARM)
A fixed rate mortgage is the most popular choice among homeowners. A FRM remains at the rate that was set when you first purchased your home – meaning if rates skyrocket, your wallet won’t be emptied. However – if rates drop drastically – some banks could refinance you and reduce your interest rate then. An adjustable rate mortgage is exactly what it appears to be. Your rate will “adjust” after a set amount of time and will change annually, quarterly, etc. depending on the industry. Don’t be tricked by the low initial rate (usually below 1%). Unfortunately, if you are taking out a large loan, some banks prefer an adjustable rate mortgage over a fixed rate mortgage.
The amount of time on the loan (usually an option of 30 or 15 years) is up to the homeowner. There are thousands of mortgage calculators you could use online to help you make your decision. This can be one of the more difficult decisions because:
A 30-year mortgage – will ask you to pay a lesser amount each month, but will cost you more over time
A 15–year mortgage – will cost you more money per month, but less over time.
Choose the option that works the best with your income. Though the average modular home financing option is a 30-year FRM, a different option may be best for you and your family.
Mobile Home Financing: Personal Property vs Real Property
While purchasing a manufactured home can help achieve the “American Dream” of owning a home, acquiring mobile home financing can prove difficult. Why is it sometimes more difficult to purchase this type of factory-built homes? Mobile homes can be considered “personal” property, instead of “real” property in some cases. Personal property is a broader category, defined as anything that isn’t real property. Real property includes land and anything attached to the land that you purchase, such as a house – think “real estate”.
Since mobile homes are typically considered personal property, most financing options for your new home will be using personal or “chattel” loans – usually at least a 2% higher rate than mortgage loans for traditional homes. While mobile homes are able to be picked up and moved to a new location if need be, a lot of manufactured homeowners plan on remaining where they originally placed the home. In this case, banks may be more willing to finance the home as a mortgage because it is fixed to land that was purchased as realty. The type of foundation you choose and the type of mobile home selected may impact how a bank “scores” your home.
Mobile Home Financing: What if I Can’t Get a Mortgage?
Unfortunately, this is where a lot of manufactured home buyers find themselves. They’re thinking, “I’m ready to purchase this mobile home, but why can’t I get a mortgage for it?” Being unable to obtain a mortgage on your home doesn’t mean the bank won’t give you a loan. It means that the bank is a little wary about taking your home as collateral when you have the ability to move it to a different location.
If you are renting the land, your only option may be a personal loan from the bank. Since personal loans are given without collateral, the bank will typically have higher interest rates on the loan. This gives the bank a little bit of relief and puts more responsibility on the homeowner. In the case of a mobile home, most banks will offer a “chattel” loan. A chattel loan basically says, “Since we can’t hold your land as collateral, we have the right to keep possession of your mobile property until you repay us.” In other words, if you lease the land that your manufactured home is on, the bank will own your home until you repay them – then you will own it.
Rented land has a lot less value than owning the land your house sits on. With so much industry taking up land, land prices are on the rise and account for most of the collateral that a bank assumes when giving homeowners a mortgage. Since many manufactured home buyers do not own the land they put their house on, personal loans account for most of the financing options available for manufactured homes.
So, What Is The Next Step?
Now that you have a little bit of background information on how banks offer loans for modular and manufactured homeowners, it’s time to get the ball rolling. Before you start looking at homes, know your financing options and know where you would like your manufactured home to be placed. If you plan on fixing the home to the lot permanently, consider purchasing the land as well. Purchasing the land gives you a better chance of acquiring a mortgage – rather than acquiring the high-interest rates associated with personal loans.
Visit several different banks and ask about their loan options on manufactured homes. If you aren’t quite ready to visit the bank about loans, ask your Blacks Home Sales representative for help. Running a complete credit check isn’t always necessary – and can actually decrease your credit if you ask too many representatives to do a full credit check.
Here at Blacks Home Sales, we cannot give specific home financing advice. But if you call us at 1-800-773-2835 or stop by one of our locations we can help you get started. Our team can work with any lender you prefer and provide a list of local lenders for you to consider.