Buying a home is one of the most exciting and rewarding experiences in life. However, it also requires careful planning, especially when it comes to finances. For those looking to purchase a manufactured or mobile home, a chattel loan can be a great option. But how much do you need for a down payment on a chattel loan? What factors determine the down payment amount? This article will explore everything you need to know about chattel loan down payments.
What Is A Chattel Loan?
First let’s cover the basics. A chattel loan is a loan used specifically to purchase a manufactured or mobile home. The home itself acts as collateral on the loan. Chattel loans have shorter terms, lower processing fees, and lower maximum loan amounts compared to conventional mortgages.
Manufactured and mobile homes that do not have permanent foundations are considered personal property rather than real estate. This is why a chattel loan, rather than a conventional mortgage, is required to finance them The home can retain its classification as personal property even if the wheels and axles are removed.
What Is The Down Payment On A Chattel Loan?
The minimum down payment for a chattel loan can vary, but is often between 5-20% of the purchase price. The specific down payment percentage you need will depend on multiple factors, including:
- Your credit score and history
- Your debt-to-income ratio
- The lender’s specific requirements
- Whether you are purchasing new or used
- The loan term length
In most cases, you can expect the down payment to fall somewhere between 5-10% if your finances are in good standing. But buyers with poor credit or high debt may be required to put 10-20% down.
What Affects The Chattel Loan Down Payment Amount?
As mentioned above, your creditworthiness plays a major role in determining down payment requirements. Lenders view borrowers with higher credit scores and lower debt-to-income ratios as less risky. Meeting these standards will likely lead to more favorable down payment terms.
The condition and age of the home can also impact down payment needs. Purchasing new from a dealer often requires smaller down payments than buying a used home. Loan terms also matter, with shorter 5-10 year loans requiring larger down payments than longer 15-20 year loans.
Finally, different lenders have different down payment policies. Comparing options from multiple lenders can help you find the best fit. VA and FHA loans sometimes offer lower down payment programs as well.
How Much Cash Do You Need To Close A Chattel Loan?
The down payment is just one portion of the closing costs associated with a chattel loan. You will also need to budget for other fees at closing, including:
- Loan origination fee – Up to 1% of the loan amount
- Application fee – Ranges from $75 to a few hundred dollars
- Attorney fees – Average of $1100
- Title fees – Average of $200
- Inspection fees – Can be $150 to $300+
- Insurance premiums – Varies based on amount of coverage
- Any applicable state or local taxes
Closing costs ultimately add an additional 2-5% of the home’s price. Shop around among lenders and negotiate terms to minimize these fees. Getting pre-approved can also help you estimate total cash needed to close.
Can You Get A Chattel Loan With No Down Payment?
While possible, a no down payment chattel loan is rare and difficult to obtain. Most lenders will require at least 5% down to reduce their risk on the loan. Borrowers with a strong financial profile may find lenders willing to approve a 0% down chattel loan, but should expect to pay a higher interest rate.
One way to get around a down payment is taking out a second loan to cover it, like a personal loan. But this will pile on debt and is not ideal for most buyers. Saving up for a reasonable down payment is recommended to get the best rates.
Do Dealers Offer Special Down Payment Programs?
In some cases, yes. Those purchasing a new manufactured home straight from a dealer may have access to dealer-sponsored financing programs. These programs can feature lower down payment requirements, sometimes as low as 3%.
Such programs allow dealers to collect interest on the financing. But this can equate to buyers getting a better deal upfront. Be sure to read the fine print and compare any dealer financing to outside chattel loan options.
Can You Use Gift Funds For A Chattel Down Payment?
Receiving gift funds from a relative, non-profit, or employer assistance program can supplement your down payment amount. Most lenders allow gift funds for a down payment as long as proper documentation is provided.
The gift-giver will need to sign a gift letter confirming the funds are not expected to be repaid. Gift funds can cover your entire down payment in most cases.
Are There Down Payment Assistance Programs?
Yes, some state and local governments offer down payment assistance (DPA) programs for manufactured home buyers. These programs provide a grant or secondary loan to cover all or part of your required down payment.
DPA program eligibility is based on financial factors like income, debts, and credit. The assistance may be in the form of a grant you do not repay or a 0% interest second loan. Availability of programs varies greatly by location.
What If I Don’t Have Enough For The Down Payment?
If you lack sufficient funds for the required down payment, you face a few options:
- Save up until you reach the down payment goal
- Seek gift funds from relatives to cover the gap
- Apply for down payment assistance programs if available
- Take out a personal loan for the down payment amount
- Put less down and finance a higher amount, if allowed by the lender
The best approach depends on your unique situation. Avoid options that rack up debt or high monthly payments. Be realistic about what you can afford.
The Bottom Line
Chattel loan down payments typically fall between 5-20% of the purchase price. Exact requirements are based on your financial profile and lender policies. Shop multiple lenders, get pre-approved, and use down payment assistance programs if possible. With the right preparation, your dream manufactured home can be within reach.
Chattel Vs. Traditional Mortgages
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Financing a Manufactured Home: What you need to know
FAQ
Are chattel loans easy to get?
What credit score do you need for a chattel mortgage?
How is a chattel mortgage secured?
What is the debt to income ratio for a chattel loan?
What is the minimum down payment for a chattel mortgage?
The minimum down payment required for a chattel loan is typically 5% of the purchase price. What happens when you default on a chattel mortgage? If you default on your chattel mortgage, your lender has the right to repossess the property that secured the loan.
What is a chattel mortgage?
Borrowers secure chattel mortgages to purchase moveable property. These loans tend to have shorter terms than regular mortgages. If a borrower defaults on a chattel mortgage, the creditor or lender can take possession of the financed property and sell it to pay off the loan. Chattel mortgages finance mobile or manufactured homes on leased land.
What happens if you fail to pay a chattel mortgage?
The borrower can lose their property to the lender if they fail to make payments. Chattel mortgages are harder to obtain due to this type of loan not being offered by many lenders. The borrower may face higher monthly payments due to a shorter loan term. You can get a real, customizable mortgage solution based on your unique financial situation.
Are chattel mortgages right for You?
Chattel mortgages aren’t for everyone. If you want to explore buying non-movable property, a FHA loan can be a great choice with its lower down payment requirements. You can also use a conventional loan to purchase a modular home, which isn’t the case with manufactured homes. Talk with a loan expert about your home-buying options. Chattel Vs.
What happens if you default on a chattel mortgage?
The movable property, called “chattel,” also acts as collateral for the loan. Basically, this means that if you default on your chattel mortgage, your creditor or lender can take possession of the property being financed and sell it to pay off the loan.
Where can I get a chattel loan?
Chattel loans are offered in person at lending institutions and through online lenders, some of which specialize in a particular type of property, such as mobile homes, aircraft, or construction equipment. How Much Down Payment Is Required for a Chattel Loan?