How to finance a mobile home

What is mobile home financing?

Financing for a mobile home can come in a few different forms, but it is essentially any type of loan that can be used for mobile or manufactured housing. In instances where consumers don't have the cash to pay for the property they want upfront, mobile home financing lets them finance the purchase and pay it off with monthly payments over time.

Note that “mobile” and “manufactured” are synonymous: a prefabricated, transportable structure used as a home. The difference between the two is based on when they were built. “Mobile home” refers to structures built prior to 1974, while “manufactured homes” are those built after that year.

How do you finance a mobile home

You typically cannot take out a conventional mortgage to purchase a mobile or manufactured home. But there are options that can work.

FHA loans

Under the Title I program, Federal Housing Administration (FHA) loans can be used "for the purchase or refinancing of a manufactured home, a developed lot on which to place a manufactured home or a manufactured home and lot in combination." The FHA does not actually lend money in this case; instead, it guarantees the loan in case the borrower defaults. You’ll have to find a lender that offers FHA loans in order to use this type of funding.

Interest rates on FHA loans are negotiated between the borrower and the lender; mobile home loans through Title I come with fixed interest rates and typically last for 20 years. The borrower must plan to reside in the property as their primary residence.

For Title I loans, borrowers are not required to buy the lot where the manufactured home sits or is going to be installed. They can lease the lot instead, although the initial lease period must last for a minimum term of three years. Other lease requirements must also be met, including a guaranteed notice period of at least 180 days before the lease can be terminated.

Maximum loan amounts and maximum loan terms also apply. For example, the total amount that can be borrowed to finance a manufactured or mobile home and a lot is limited to $92,904, and the maximum loan term is set at 25 years, plus 32 days for a loan on a multisection manufactured home and lot.

Title II loans can be used for single-family home residences that meet FHA guidelines. This includes some manufactured homes; loans can last for up to 40 years and must fall within standard FHA loan limits.

Also note that the FHA does not insure mortgages on manufactured homes built prior to June 15, 1976.

» MORE: FHA loan requirements

VA loans

Eligible military members and veterans can use VA loans to purchase a manufactured home and the property it sits on. Properties eligible for VA financing must meet specific requirements, including the requirement that the home is affixed to a permanent foundation. Other VA loan manufactured home guidelines require at least 700 square feet of interior space in the property and that the home meets local zoning requirements.

VA loans come with numerous benefits, making them an attractive option for those who qualify. For example, eligible veterans can purchase a home with no money down and don’t have to pay mortgage insurance.

Fannie Mae

Fannie Mae offers some affordable financing options for manufactured housing through its MH Advantage program. This home loan lets borrowers purchase manufactured homes with as little as 3% down, although specific property requirements must be met. For instance, the home must be designed as a multisection property (no single-width homes), eaves must be 6 inches or greater, and the roof pitch must have a ratio of 4/12 or greater unless it's a triple-wide home with no pitch.

Manufactured homes financed through Fannie Mae must also be titled as real property.

Freddie Mac

Freddie Mac also offers home financing options that apply to manufactured properties, although certain housing requirements must be met. For example, manufactured housing must have been built on or after June 15, 1976, and the property must be on a permanent foundation. The property must also be a one-unit dwelling that is permanently connected to utilities.

Freddie Mac guidelines for manufactured housing also state that the square footage and room dimensions "must be acceptable to typical purchasers in the market area."

Chattel loan

Chattel loans have higher interest rates than conventional mortgages but often come with shorter terms, so you might save on interest over the long run.

Senior investment advisor and credit consultant Bruce Mohr of Credit Sage says that financing referred to as a "chattel loan" can be a good option for manufactured housing. Certain farm equipment, as well as mobile homes, yachts, houseboats and aircraft, may be eligible for chattel mortgages, he says. Keep in mind that interest rates for this type of loan can be much higher than rates on traditional mortgages.

Chattel loans also treat the property you're financing as collateral, so you can lose your mobile home if you fail to keep up with payments.

That said, chattel loans often have shorter terms, which reduces the overall amount of interest paid, notes Mohr. Chattel loans sometimes feature reduced closing fees and quicker loan closing times.

Personal loan

Borrowers can also use personal loans to finance mobile homes or manufactured homes. These loans often come in amounts up to $100,000, and they feature fixed interest rates, fixed monthly payments and fixed repayment plans that do not change for the life of the loan.

Because most personal loans are typically unsecured, this type of financing can be obtained without collateral to purchase mobile homes, manufactured homes with a lot and other types of property.

How to boost your approval chances for a mobile home mortgage

If you’re looking to purchase a mobile home, you’ll want to make sure you’ve prepared yourself and your finances to increase your odds of approval. The following tips can help:

• Check your credit reports. While minimum credit score requirements can vary depending on the type of mobile home financing you're after, you'll want to take steps to get your credit in the best possible shape. With that in mind, you should use the website AnnualCreditReport.com to get copies of your credit reports from all three credit bureaus — Experian, Equifax and TransUnion. If you find any errors on your report that may be negatively impacting your score, you should dispute them with the credit bureaus right away.
• Research mobile home types and financing options. Compare manufactured homes and modular homes to decide which features you want the most. Also, consider whether you want to build and customize your manufactured home from scratch or if you want to look at existing properties for sale.
• Decide if you want to buy a mobile home, the land for a manufactured property or both. Make sure you understand which financing options are available for the type of property you want to buy. If you want to buy a mobile home that is not permanently affixed to the ground, for example, you may be limited to options like chattel loans or personal loans.
• Shop around and compare rates, and then submit a complete and transparent application. Comparing mobile home financing options can help you get the best deal. Depending on the type of property you want to buy, it can help to reach out to several lenders that specialize in FHA loans, home loans offered through Fannie Mae and Freddie Mac, and even VA loans.

Mohr, from Credit Sage, says that finding a lender offering manufactured home financing can be more challenging because mobile homes depreciate over time. However, there are still plenty of choices. "Just be sure to do your research to find the best one based on your needs, preferences, needs and financial situation," he said.

» MORE: How to choose a mortgage lender

What to consider when buying a mobile home

When buying a mobile home, you should consider where you want to live and whether you want the option to take your property with you if you move. You will also want to look at both new and used mobile homes and consider the costs associated with owning a mobile home in the long run.

If you own the land, for example, you'll be responsible for property taxes in addition to housing costs. Conversely, renting the land your mobile property sits on typically means paying ongoing rental fees.

Bottom line

A mobile home can be a smart option to consider if you're struggling to afford a traditional property. However, you'll need to understand the financing options that work with the type of property you want to buy. You'll also need to make sure the mobile home isn't too old to qualify for financing, since some loans only apply to manufactured homes built after 1976.

By digging into your options and comparing available homes, you can position yourself for the best and most affordable mobile home financing for your needs.