Everything You Need To Know About Getting An FHA Loan For A Modular Home

Modular homes are becoming an increasingly popular housing option for many buyers. They provide the quality and customization of site-built homes with the efficiency and cost-effectiveness of factory construction. If you’re considering purchasing a modular home, you may be wondering about financing options. One option to explore is an FHA loan. In this comprehensive guide, we’ll explain everything you need to know about getting an FHA loan for a modular home.

What is a Modular Home?

Before we dive into FHA loan specifics, let’s make sure we’re all on the same page regarding what constitutes a modular home. Modular homes are factory-built dwellings that are constructed in sections or modules at an offsite facility The modules are then transported to the building site where they are assembled and finished

Modular homes must adhere to local building codes and standards. They are built to the same construction quality and standards as site-built homes. In fact once completed it’s virtually impossible to distinguish a modular home from a site-built home. The main difference lies in the construction process.

There are a few key advantages to modular construction:

• Cost savings: Factory construction results in lower material and labor costs compared to site-built construction. Bulk purchases and assembly line efficiency reduce costs as well.

• Faster construction: Modular homes can be completed in as little as half the time of site-built homes since construction occurs concurrently offsite and onsite.

• Customization: Homebuyers have extensive flexibility when customizing floor plans and choosing finishes.

• Quality: Offsite construction occurs in a controlled, factory environment safe from weather delays resulting in high-quality construction.

Now that we’ve covered the basics of what constitutes a modular home, let’s look at how you can finance the purchase with an FHA loan.

FHA Loan Overview

FHA loans are government-insured mortgages provided by private lenders but insured by the Federal Housing Administration (FHA). Some key features include:

• Low down payments: Only 3.5% down payment required for qualified buyers.

• Flexible credit requirements: Minimum 580 credit score required.

• Low mortgage insurance: Upfront mortgage insurance premium of 1.75% of loan amount plus ongoing annual premiums.

These features make FHA loans popular options for first-time and credit-challenged homebuyers. But modular home buyers can also benefit.

Using an FHA Loan to Purchase a Modular Home

The good news is FHA loans can be used to finance the purchase of modular homes. However, there are some specific requirements:

• The modular home must be classified as real property and subject to real estate taxes rather than personal property taxes.

• The modular home must be built after June 15, 1976 when the FHA building code went into effect.

• The modular home must be properly assembled and attached to a permanent foundation on land owned by the borrower.

• The modular home must meet all other FHA property requirements.

As long as these criteria are met, buyers can finance a modular home through an FHA loan just like a site-built home. You’ll need to go through the standard FHA mortgage application and approval process.

FHA Loan Application Process for Modular Homes

When applying for an FHA loan to purchase a modular home, you’ll follow the same process as you would for a site-built home:

1. Get pre-approved: Work with an FHA-approved lender to assess your finances and get pre-approved for a loan amount. This helps you know your budget when house shopping.

2. Find the home: Once pre-approved, you can start searching for your perfect modular home. Work with modular home builders or retailers to view options.

3. Make an offer: When you find the modular home you want, make an offer and negotiate a purchase agreement with the seller contingent on securing financing.

4. Complete loan application: Your lender will have you fill out a full loan application and submit required documents to verify income, assets, employment, and more.

5. Home appraisal: An FHA home appraiser will assess the value of the modular home and land to ensure it meets FHA valuation guidelines.

6. Loan processing: The lender will underwrite the full loan application and secure the FHA insurance commitment.

7. Closing: Finally, once approved, you’ll sign all the closing documents to seal the deal.

The process is the same for site-built and modular homes. The key is ensuring the modular home meets all FHA property requirements.

Pros and Cons of FHA Loans for Modular Homes

We’ve covered the basics of getting an FHA loan for a modular home. As with any financing decision, there are some key pros and cons to weigh:

Pros

• Low down payment options

• More flexible credit requirements

• Potentially lower interest rates

• Lower mortgage insurance costs

Cons

• Loan limits may be restrictive in some markets

• Upfront and ongoing mortgage insurance premiums

• Slower financing process

• Must meet FHA property requirements

Carefully consider these when deciding if an FHA loan is the right financing option for your modular home purchase.

Alternatives to FHA Loans for Modular Homes

FHA loans aren’t your only financing option when buying a modular home. Some other options include:

• Conventional loans: Have higher credit score requirements but lower mortgage insurance costs.

• USDA loans: Offer 100% financing and low rates for properties in rural areas.

• VA loans: Provide 100% financing options for eligible military borrowers.

• Construction loans: Useful for buyers wanting to personalize onsite finishing work.

• Personal loans: Often used to finance land/property when the modular home is classified as personal property.

Talk to your lender about the best financing solution for your unique financial situation and the specifics of your modular home purchase.

Finding the Right FHA Lender for Your Modular Home Loan

Clearly, FHA loans can be a great financing solution for buying a modular home. A knowledgeable lender familiar with FHA and modular home requirements will make the process smoother.

When searching for the right FHA lender, look for the following:

• Extensive FHA mortgage experience and approvals.

• Familiarity financing modular home purchases.

• Ability to walk you through unique requirements.

• Strong borrower service and communication.

• Competitive interest rates and closing costs.

Take time to research multiple lender options, compare interest rates, and vet customer satisfaction before selecting the ideal lender partner for your modular home loan.

Buying Your Dream Home With an FHA Modular Home Loan

Owning a modular home is now more accessible than ever thanks to FHA financing options. If you’re hoping to buy a modular home, you can do so with a low down payment FHA loan as long as all requirements are met. Just partner with a trusted FHA lender to walk you through the mortgage process from pre-approval to closing. Soon you’ll be moving into your dream modular home thanks to flexible FHA financing.