A Primer on Mobile Home Loans

Despite the commercials and common wisdom, traditional home ownership isn’t for every American. Many prospective homeowners little desire to sink hundreds of thousands of dollars into a single building.

That’s one of the major reasons why manufactured homes have become increasingly popular in the last five years. More sophisticated and technologically equipped than ever before, mobile homes are the answer for many homeowners looking to save money and avoid the hassles that can come with the traditional housing market.

With most manufactured homes, buyers will encounter two distinct financing vehicles — a personal property loan or a mobile home mortgage loan.

The first, a personal property loan, is for mobile homes without a permanent foundation. Mobile home sellers often provide these loans directly to the consumer. Purchasers are typically on the hook for a down payment of about 10 percent of the home’s total value.

For homes with a permanent foundation, buyers can utilize the second financing option, a more traditional mortgage. There are several types of mobile home mortgage loans. Here’s a snapshot of a few of the major ones:

Conventional mortgage
Lending institutions do provide loans for mobile homes, with both fixed-rate and adjustable terms. Buyers with great credit can score good deals on rates and down payment, while those with less-than-perfect credit may pay higher rates.

Construction loan
There are some instances where a lender will offer purchasers a construction loan to build a manufactured home and then cover repairs and improvements on the site.

Federal loan
Government-backed loans (FHA and VA) are also an option. For FHA loans, the lending limit is $175,000 on buyer-owned land. The VA allows veterans who qualify to borrow up to 95 percent of the total price of the home. Even the U.S. Department of Agriculture (USDA) offers home loans for rural buyers.

State loans
State agencies (a housing authority in many cases) can facilitate mobile home loans for buyers.

Like any other loan product, prospective borrowers will have to meet the loan program’s requirements. Some are financial, while others center on the type of home to be purchased. Here’s a look at some of the criteria:

Credit and Financial
Count on needing a credit score in the ballpark of 620 to be considered for quality rates and terms. Otherwise, be prepared to encounter wary lenders and higher rates. There are programs that can help prospective borrowers build their credit.

Down Payment
Your down payment will likely be about 5 to 10 percent of the total price. Those with excellent credit may qualify for a low down payment mortgage. So, know going in that you’ll be on the hook for cash upfront.

Foundation
Federal standards created in the mid-1970s now apply for all manufactured homes. If you’re buying a refurbished home, realize that those constructed before those standards took effect will likely fail to qualify for a mobile home loan.