How to Get Construction Loans for Manufactured Homes

Buying or building a manufactured home can be an affordable way to become a homeowner. With factory construction keeping costs low modular and mobile homes offer a budget-friendly alternative to site-built houses. But financing the construction of a manufactured dwelling comes with its own unique challenges. Construction loans designed for manufactured homes make the process more feasible.

Construction loans provide short-term financing to build a new home. After the build the loan converts to a traditional mortgage. This transition to long-term financing is what makes construction loans distinct.

Banks offer construction-to-permanent loans that combine the construction loan and mortgage into a single loan product. This streamlines the process. Borrowers only need to apply and close once on the combined loan.

But what if you want to build a manufactured home? Can you still qualify for construction financing? Are there loans designed for factory-built modular and mobile homes?

In this guide, we’ll cover how construction loans work for manufactured homes. We’ll look at:

• Types of construction loans for manufactured housing
• Loan eligibility and requirements
• The construction loan process from start to finish
• Interest rates and fees to expect
• Tips for securing the best loan deal

Overview of Construction Loans for Manufactured Homes

Construction loans allow you to finance the building of a new home on an owned piece of land. With a manufactured home, construction happens primarily off-site in a factory. The home’s sections or modules get delivered to your land where they will be joined and finished.

These loans have short 6- to 12-month terms. The borrowed amount covers:

• Manufactured home construction costs
• Foundation work
• Transporting and installing the home
• Finishing work like siding, roofing, plumbing, and landscaping

Once construction completes, the loan converts to a traditional mortgage. This provides long-term financing to pay off the construction loan.

Banks, credit unions, and manufactured housing lenders offer construction loans for factory builds. They come in a few forms:

Construction-only loans – Finances just the building phase. You must get separate permanent financing after completion.

Construction-to-permanent loans – A single loan covers both the construction period and the remaining mortgage. Streamlines the process.

One-close loans – Construction and mortgage phases wrapped into one loan. Closing happens only once, at the start.

Constructing a manufactured home with financing works much like building a site-built home. But unique requirements for factory dwellings make construction loans a bit different.

Manufactured Home Construction Loan Requirements

Qualifying for a construction loan involves two key steps – you must qualify as a borrower, and the home itself must meet eligibility criteria.

Borrower Eligibility

Lenders will evaluate your finances to ensure you can afford construction loan payments during the build. They also want to see you can qualify for permanent financing post-construction.

Credit score – Most lenders require a minimum score in the 600s. Better scores get better rates. FHA loans can approve scores as low as 500-580 with a 10% down payment.

Downpayment – Expect a 20-30% downpayment requirement. One-close loans only need around 3-10% down. FHA loans permit 3.5-10% down.

Income and employment – stable income and 2 years of employment help show repayment ability. Self-employed may need 3 years tax returns.

Debt-to-income ratio (DTI) – Your total monthly debt payments, including the construction loan, divided by gross monthly income. Most lenders limit DTI to 43-50%.

Assets and reserves – Banks want to see you have enough liquid assets to cover unexpected costs during construction. Look for a required 3-6 months reserves.

Manufactured Home Requirements

The factory-built home must also meet certain criteria to qualify for construction financing:

• Built after June 15, 1976 and has a HUD Tag verifying compliance with HUD construction and safety standards
• Has the required minimum square footage (often 400-600 sq. ft.)
• Will be attached to a permanent foundation on land you own
• Is taxed as real property, not personal property
• Has the required amenity upgrades needed to qualify for permanent financing post-construction

Meeting both sets of requirements is key to getting approved for a manufactured home construction loan.

The Manufactured Home Construction Loan Process

Building a factory home with construction financing involves several steps from start to finish. Here is an overview of the process:

1. Find land and plans – Locate a vacant lot you can purchase to host the manufactured home. Get blueprint plans drawn up for the home design.

2. Choose a lender and loan – Research lenders and loan options. Apply and get pre-approved for financing. One-close or construction-to-perm loans simplify the process.

3. Purchase the land – Buy the lot once you secure construction financing. Some lenders may release funds directly at closing to acquire the land.

4. Start construction – The factory will start building home sections once the loan closes. Install site work like the foundation.

5. Complete construction – The home gets delivered, installed, and completed on-site. Extra finishing work often required.

6. Convert to permanent mortgage – Construction loan converts to a traditional mortgage once the home is finished. Streamlined with a one-close loan.

7. Make mortgage payments – Starting making payments on the new permanent mortgage used to pay off the construction loan.

While the process seems linear, you’ll work with your lender throughout construction to draw on loan funds incrementally as each stage completes. Timelines vary but expect 6-12 months until permanent financing kicks in.

Interest Rates on Manufactured Housing Construction Loans

How much does it cost to borrow money to construct a factory-built home? Construction loans come with their own unique set of interest rates and fees.

Rates on manufactured home construction loans run higher than conforming mortgages. You’ll typically see rates in the 8-10% range. But it can vary based on:

• Credit – Better credit means better rates. Scores below 640 see the highest rates.

• Loan type – Construction-only loans cost more than one-close options.

• Land – Loans for land you already own get better rates than construction-purchase plans.

• Term – Shorter 6-month terms have lower rates than 12-month loans.

In addition to higher rates, you’ll pay fees for things like:

• Origination or underwriting – 1-2% of loan amount
• Application and processing
• Appraisal and inspection
• Land survey charges
• Title insurance and legal fees
• Permanent loan fees on construction-to-perm loans

Rates and fees vary widely between lenders. So shop around for the most affordable manufactured home construction financing.

Tips for Getting the Best Deal on Construction Loans

Because costs run high, follow these tips to score the lowest rates and fees:

• Get your finances in order – Improving credit, income, and cash reserves boosts eligibility.

• Shop multiple lenders – Compare loan options, rates, and fees. Local banks and credit unions may offer better deals.

• Pay points to buy down the rate – Paying points upfront reduces monthly payments. Break even around 3 years.

• Minimize loan term – Shorter 6-month terms feature lower interest rates.

• Pay downpayment from your own funds – Avoid second loans that drive up overall costs.

• Choose one-close construction loans – Wrap construction and mortgage into one loan for easier, cheaper financing.

• Get quotes from manufactured home lenders – Specialty lenders catering to factory builds may offer better pricing.

The bottom line is construction loans make building a new manufactured home possible. You get financing for a short-term build that converts into a traditional permanent mortgage. Following the tips above helps minimize the higher costs associated with construction loans for manufactured housing.

With the right preparatory work, building a factory-based dwelling with construction financing can save you money over buying a site-built house. Just be sure to pick the lender and loan program that best fits your financial situation. That way you can maximize affordability and make your dream of owning a custom manufactured home a reality.