
Mortgage Financing for Manufactured & Mobile Homes: The Different Lending Rules
Mortgage Financing for Manufactured and Mobile Homes: The Different Lending Rules
Manufactured and mobile home financing is a special niche of home financing and fall into the category of factory built homes. Factory built homes are prefabricated homes built offsite and then are delivered to the site by truck. Both manufactured homes and mobile homes fall into this category. Not every lender can finance manufactured homes and a lot fewer can finance a mobile home. To understand this type of financing, one must first know the difference between a mobile home and a manufactured home. All Manufactured homes begin as mobile homes and they are considered vehicles (mobile homes) until they are attached to a foundation. Mobile homes that are not officially attached to a foundation will remain mobile homes and they are not considered real estate. This modest difference has wide ranging ramifications for mortgage financing of manufactured homes. So if a mobile home has not been officially attached to a foundation it is considered a vehicle and remains licensed under the department of motor vehicles and is not officially real estate and cannot therefore be financed as a mortgage loan. Generally, mobile homes that are in parks are not real estate either since they lease or rent the lot they are situated in and therefore cannot apply for mortgage loans. Generally, mobile homes have to get special mobile home financing which is about 2% higher than regular mortgage rates and are usually limited to 20 to 25 years. Generally, credit unions perform these loans.
Unfortunately, manufactured housing has received unfavorable, and unfair I might add, treatment in the mortgage lending world due to a problem that occurred in the South in the 1970s. Unfortunately, Fannie Mae financed a number of properties that were manufactured homes where the foundations failed due to inferior construction. This was a unique problem and not nation wide. At the same time, the Department of Housing and Urban Development (HUD-FHA) outlawed any manufactured home built before October, 1976 to be suitable and legal. Therefore, only manufactured homes built after this date can be financed in the mortgage industry after they are attahced to the land by permanant foundation. If they are not placed on a foundaiton, they remain mobile homes. Due to this 1970s stigma, the mortgage world determined that manufactured homes were inferior to stick built properties.
So what is the real difference then between manufactured homes, modular homes and stick built homes? First of all, most manufactured homes have metal or aluminum framing as opposed to wood framing. In many ways manufactured housing exceeds stick built properties in retaining heat and functionality. Second, manufactured homes have a tongue and groove, I-beam foundation, while modular homes have foundations similar to stick built homes. Most manufactured homes today are called “doublewides” because they come in two rectangular boxes that are then fitted together on the site. Both boxes have a label associated with them (see below). This difference between stick built homes and manufactured homes has made it more difficult to finance them. Modular homes, although factory built, are not considered manufactured homes only because they do not have an I-beam foundation and are considered stick built homes. An important way to determine if a property is a manufactured home, is go to the rear of the property and locate the HUD labels on the lower right and left hand portions of the unit. In older units, the labels are located in the water heater closet. If you cannot locate the stickers, you can look under the unit and if you can see the steel I-beams running from one end to the other if it is a manufactured home.
Financing: manufactured homes loans are definitely more expensive in both cost and rate. Rates are usually as much as .25% to .50% higher and an additional foundation certification is also always required ($450 to $500). ( I have found a source that does not cost more in rate.) Additionally, there are financing limitations on manufactured homes. There are no loans available for manufactured to be purchase as rentals or income property. You may run into trouble if there are more than 10 acres on the property. Additionally, in a refinance, if one cashes out on these structures, the term is cut to 20 years max on conventional loans. There is a limited market for financing manufactured homes as compared to stick built properties. There are no such limits on Modular homes which are considered the same as stick built properties.
Marketability: Marketability is defined as the maximum price advantage with liberal availability of options. Manufactured homes sales should not be used or compared to stick built sales (for conventional loans) which limits their appreciation. Stick built homes that share a lot with manufactured homes cannot be financed at all for any kind of reasonable loan. There are no such limits on modular homes. Important note: Remember, a mobile home built before October, 1976 can never be defined a real estate, even if it is on a piece of land. So paying a lot for a structure that is in this category is a huge waste of money.
Quality of Construction: Over the years, factory housing has caught up the standards of electrical, plumbing, heating and energy efficiency, but manufactured homes are still built with the lowest cost of finished materials, although upgrades can be requested. Additionally, manufactured homes are boxed and rectangular for delivery efficiency, making it difficult for them to appear custom built, affecting design and appeal.
Ralph Migliozzi
Broker Originator Serving Northern California
NMLS 282851 DRE #01002038
(p) 530-330-3073