Everything You Need to Know About FHA Modular Home Loans

Modular homes are a great option for affordable homeownership. They provide the quality and customization of site-built homes at a lower cost. If you’re considering buying a modular home, an FHA loan can help make it more affordable. In this comprehensive guide, we’ll explain what an FHA modular home loan is, who qualifies, and how the process works from start to finish.

What is an FHA Modular Home Loan?

An FHA modular home loan is a mortgage insured by the Federal Housing Administration that can be used to finance the purchase and construction of a modular or factory-built home. Modular homes are built in sections or modules in a factory, then delivered and assembled onsite.

FHA loans make buying a modular home easier because they require lower down payments and credit scores than conventional mortgages Borrowers only need a 35% down payment, And you can get approved with a credit score as low as 580 if your down payment is under 10%,

With an FHA modular home loan, you can finance:

• The cost of the modular home
• Transportation of the home sections to the site
• Foundation construction
• Physical installation of the modular sections
• Other onsite construction costs
• The purchase of the land the home sits on

You can also refinance an existing FHA loan into a new FHA modular mortgage.

FHA Loan Requirements for Modular Homes

Modular homes have to meet certain FHA property requirements to be eligible for financing. All FHA borrower eligibility criteria also apply.

Modular Home Requirements

For an FHA loan, the modular home must:

• Have at least 400 square feet of living space
• Have a HUD Certification Label or HUD Data Plate attached
• Meet additional state and local codes for foundation, installation, and construction
• Be permanently attached to a foundation

The home can only have one section that’s 400 square feet or smaller, Any other sections must be over 400 square feet

Additionally the home and land have to meet all Fannie Mae requirements for condo projects if it’s located in a condo or planned unit development (PUD).

Borrower Requirements

To qualify for an FHA modular home loan as a borrower, you must:

• Have a credit score of at least 580 if your down payment is under 10%
• Keep your debt-to-income ratio under 43%
• Make a down payment of at least 3.5%
• Occupy the home as your primary residence
• Be a U.S. citizen or lawful permanent resident
• Pass a CAIVRS check showing you have no federal debt delinquencies

You’ll also need to pay for both upfront and annual mortgage insurance premiums since all FHA loans require mortgage insurance.

How to Apply for an FHA Modular Home Loan

Follow these steps to get an FHA mortgage for your modular home:

1. Check your eligibility. Make sure you meet all the credit, income, and down payment requirements to qualify. An FHA loan calculator can help you estimate payments.

2. Get pre-approved. Work with an FHA-approved lender to get pre-approved. This shows sellers you’re serious.

3. Find a home. Search for FHA-approved modular home builders and dealers. Make sure the home meets FHA criteria.

4. Make an offer. Make an offer once you’ve found the perfect modular home for your needs.

5. Complete the loan application. Your lender will have you fill out a full loan application with income documentation.

6. Get an appraisal. An appraiser will inspect the modular home plans and confirm it meets HUD standards.

7. Close on the loan. After your lender underwrites and approves the loan, you’ll close and the modular home construction can begin!

Working with a knowledgeable FHA lender can help streamline the process. Be sure to ask potential lenders about their experience with FHA modular home loans specifically.

FHA Modular Home Loan Rates & Terms

FHA mortgage rates for modular homes will be the same as standard FHA loan rates. These are typically competitive with conventional mortgage rates.

As of March 2023, average nationwide FHA interest rates are:

• 5.5% – 6.5% for 30-year fixed-rate loans
• 4.25% – 5.25% for 15-year fixed-rate loans

Modular construction loans may have slightly higher rates until the home is finished. You can refinance into a traditional long-term FHA loan after closing.

FHA loans allow for long repayment terms up to 30 years. The longer the term, the lower your monthly payment will be. But you’ll pay more interest over the full loan term.

A 15-year loan costs less overall but has higher monthly payments. You can run the numbers with an FHA mortgage calculator to see which term fits your budget.

The FHA Modular Home Loan Process Timeline

Buying a modular home with an FHA loan takes about 60-90 days from start to finish. Here’s a breakdown of the typical timeline:

• Day 1: Begin pre-approval process
• Day 10: Get pre-approved by lender
• Day 20: Make an offer and start the loan application
• Day 30: Appraisal is completed
• Day 45: Loan is underwritten by lender
• Day 60: Loan closes and modular home construction begins
• Day 75-90: Modular home construction finished, you move in!

If any complications come up during underwriting, it can prolong the process. Be sure your lender has all needed documents as soon as possible to keep things moving.

The modular home will take 30-60 days to construct once financing is secured. Some can be built in as little as two weeks!

You’ll be able to move in once installation on your foundation is complete. Then enjoy the perks of your new energy-efficient modular dream home.

Pros and Cons of FHA Modular Home Loans

Let’s recap some of the key advantages and potential drawbacks of financing a modular home with an FHA loan:

Pros

• Low down payment of just 3.5%
• More flexible credit score requirements
• Lower monthly payments with long loan terms available
• Refinancing an existing home is possible
• Modular homes are more affordable than site-built homes

Cons

• Monthly mortgage insurance premiums required
• Modular homes must meet additional construction requirements
• Restrictions on condo and PUD modular units
• Potentially longer construction timeline
• Refinancing construction loans may require multiple loans

The pros generally outweigh the cons, especially if you want an energy-efficient home with custom features at a reasonable price. Just be sure to find an experienced lender familiar with FHA modular loan guidelines.

Alternatives to FHA Modular Home Loans

An FHA loan is just one financing option for factory-built modular homes. Some other options include:

• Conventional loans – May offer lower interest rates for borrowers with excellent credit (720+ scores). Private mortgage insurance may be required.

• USDA loans – For low-income borrowers in rural areas. Feature 100% financing and low rates. Homes must meet all USDA criteria.

• VA loans – For veterans and service members. Provide 100% financing options and limited underwriting. Must be owner-occupied.

• Construction loans – Interim, short-term financing while the modular home is built. Can be refinanced into permanent mortgages after.

• Personal loans – Smaller loans from banks/credit unions to cover land purchase or a portion of costs. Higher rates than mortgages.

• Modular home retailer financing – Some dealers offer in-house lending options for buyers.Can be restrictive so compare interest rates.

Talk to a few different lenders to see which loan program provides the best mortgage rates and terms to fit your budget and timeline.

Finding the Best FHA Modular Home Lenders

As with any mortgage, finding the right lender for an FHA modular loan is key. Ask these questions when vetting potential lenders:

• Are they approved by FHA?
• Do they have experience with modular home loans? How many have they closed?
• Can they handle the interim construction financing?
• Will they service the mortgage in-house?
• Are they local to the home’s area?
• What are their FHA interest rates and fees?

Ideally, look for an FHA lender that specializes in financing factory-built and modular homes. They will best understand the unique requirements.

Certain credit unions and community banks are good options since they offer personalized service. But don’t rule out larger lenders, as some have designated FHA modular loan programs.

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