Everything You Need To Know About FHA Loans For Manufactured Homes

Manufactured homes also known as mobile homes, can be an affordable housing option for many buyers. With prices significantly lower than site-built homes in many areas, manufactured homes allow buyers to own a home without breaking the bank. However financing a manufactured home can be more difficult than financing a site-built home. This is where FHA loans can help.

FHA loans are government-backed mortgages insured by the Federal Housing Administration (FHA). They offer more flexible underwriting guidelines than conventional loans, making them ideal for buyers who may not qualify for other types of mortgages. In this comprehensive guide, we’ll explain everything you need to know about using FHA loans to finance a manufactured home purchase.

What Are FHA Loans?

FHA loans are a popular mortgage option, especially for first-time homebuyers. Here are some key things to know about these loans:

• Insured by the FHA, which is part of the U.S. Department of Housing and Urban Development (HUD). This insurance protects the lender if the borrower defaults.

• Offered by FHA-approved lenders nationwide. You apply through a lender not directly through the FHA.

• Have lower credit score requirements than conventional loans. Minimum scores range from 500 to 580 depending on down payment.

• Require a down payment as low as 35% of the purchase price

• Charge an upfront mortgage insurance premium (MIP) of 1.75% of the loan amount, plus an annual MIP between 0.45% and 1.05% of the original loan amount.

By insuring the loans, FHA allows lenders to take on borrowers they may consider too risky for conventional loans. This makes homeownership possible for more buyers.

FHA Loan Options For Manufactured Homes

The FHA offers two main loan programs that can be used to finance a manufactured home purchase:

Title I Manufactured Home Loan

With an FHA Title I loan, the home does not need to be placed on land that you own. Key details include:

• Can be used to purchase a manufactured home and/or the land it sits on

• Maximum loan amount is $92,904 if financing both home and land

• Home can be detached from its site

• Can finance a new or used home

• Minimum down payment is 10%

Title II Manufactured Home Loan

Also called a “traditional” FHA loan, Title II has stricter land ownership requirements:

• Home must be attached to land that you own

• Follows general FHA guidelines for traditional homes

• Minimum down payment is 3.5% with a credit score of at least 580

• Maximum loan amount follows FHA limits for traditional homes, based on local housing costs

• Home must be classified as real property, not personal property

In most cases, the Title II program offers better terms and more flexibility for buyers. But the Title I program can be a good option if you don’t own land yet.

Manufactured Home Requirements For FHA Loans

FHA loans have strict property requirements for manufactured homes. These include:

• Home must have been built after June 1976 when HUD implemented updated building codes

• Minimum 400 sq.ft. of living space

• HUD certification label attached to the exterior

• Permanently attached to a foundation

• Have sufficient utilities and all-weather road access

• Cannot have been moved from another site (with some exceptions)

• Home and land must be classified as real estate, not personal property

The home will be inspected to ensure it meets HUD construction standards and is properly installed.

Borrower Eligibility Requirements

As the borrower, you’ll need to meet these FHA loan qualifications:

• Credit score of at least 500, or 580 for 3.5% down payment

• Debt-to-income ratio below 43% in most cases

• Sufficient income and assets to qualify

• Clean credit history with limited late payments, foreclosures, and bankruptcies

• Current on federal debts to be eligible per CAIVRS check

• Intends to use home as primary residence

FHA loans are limited to owner-occupied principal residences. You cannot use them to finance a second home or investment property.

Meeting these requirements is essential for getting approved. Be ready to document income, assets, credit history, and overall financial health.

The Loan Process From Start To Finish

Now let’s walk through the typical timeline for getting an FHA manufactured home loan:

1. Get pre-approved. Work with a lender to assess your finances and get pre-approved before house hunting. This shows sellers you can get financing.

2. Find the home. Search for FHA-eligible manufactured homes within your budget. Remember it must be built after 1976.

3. Make an offer. Work with your real estate agent to submit an offer once you’ve found “the one.”

4. Inspect the home. An appraiser will visit to ensure the home meets HUD standards. A foundation inspection will also take place.

5. Underwriting. The lender will verify all documentation and ensure you meet FHA requirements. This is when your interest rate will be finalized.

6. Closing. After underwriting, set a closing date to sign paperwork and seal the deal.

7. Move in! Once closing is complete, get the keys and move into your new manufactured home!

While every home purchase is different, you can generally expect this process to take 30-60 days from start to finish.

Pros And Cons Of FHA Loans On Manufactured Homes

FHA loans can be a great financing solution for manufactured homes, but also have some potential drawbacks:

Pros

• Low down payments, as low as 3.5%

• Available with lower credit scores

• Loans for land-home combo and home-only

• Nationwide lender availability

Cons

• Restrictions on older/used manufactured homes

• Additional costs for mortgage insurance

• Lengthy underwriting and approval process

• Lower maximum loan amounts for Title I

• Not available for second homes/investment properties

Look at both the advantages and disadvantages when deciding if an FHA loan is your best option.

Alternative Loan Options For Manufactured Homes

FHA isn’t the only financing choice out there. Other loans to consider include:

• Conventional loans – Require better credit and income than FHA loans. But they have lower mortgage insurance costs once you reach 20% equity.

• VA loans – For qualifying military members, veterans, and spouses. Require home to be permanently attached.

• USDA loans – 100% financing available in designated rural areas for moderate income borrowers.

• Manufactured home retailer financing – Your retailer may offer in-house financing options too. These vary.

• Personal loans – Can be used for a manufactured home down payment if you don’t qualify for home financing.

Shop around and compare mortgage rates and terms across multiple lenders to find the best fit.

Finding The Right FHA Lender

The lender you choose can impact your loan terms and overall experience. Here are tips for finding the right FHA lender:

• Verify they are approved by the FHA to offer Title I and II loans
• Ask about experience with manufactured housing loans specifically
• Get rate quotes from multiple lenders for comparison
• Check online reviews to see what past clients say
• Avoid lenders pushing you to accept unfavorable terms

Taking the time to find a reputable, knowledgeable lender is key to a smooth process.

Is An FHA Loan Right For You?

If you’re considering buying a manufactured home, an FHA loan can make it more affordable. The benefits of low down payments, flexible credit guidelines, and different loan types are big perks for buyers. Just be sure to weigh the pros and cons against other financing options too. And find an experienced FHA lender you trust to guide you through the process. With the right loan choice, you’ll be in your brand new manufactured home in no time!