Using FHA Loans to Finance Manufactured Homes

Manufactured homes, sometimes called mobile homes, offer an affordable way for many folks to achieve the dream of homeownership. With factory construction keeping costs low, manufactured houses provide a budget-friendly alternative to site-built houses. However, financing a manufactured home can pose challenges compared to financing a traditional house. Luckily, FHA loans offer a great option for buyers wanting to purchase a manufactured home. In this article, we’ll explore using FHA loans to finance a manufactured house.

What is a Manufactured Home?

The U.S. Department of Housing and Urban Development (HUD) has specific definitions and standards for manufactured homes financed with FHA loans. A HUD-approved “manufactured home” is a factory-built house constructed to meet HUD’s Manufactured Home Construction and Safety Standards building code. The home must have been constructed after June 15, 1976 when the updated building code went into effect. Approved manufactured houses will have a red certification label attached to each section indicating compliance with the code.

A key aspect of HUD’s definition requires that manufactured homes be built on a permanent chassis for transportation to the site The chassis allows the home to be hauled to the property where it will be installed Once delivered, the towing hitch and wheels are removed. This requirement distinguishes manufactured houses from modular homes which are also factory-built but transported on flat-bed trucks in sections and assembled on site.

How FHA Loans Work for Manufactured Homes

For homebuyers interested in purchasing a manufactured home, FHA loans offer a feasible financing option. FHA loans come from lenders approved by the Federal Housing Administration. Even though buyers borrow from a participating lender, the FHA insures the loan protecting lenders from losses if the borrower defaults. This backing makes lenders more willing to approve loans for buyers who meet FHA requirements but may not qualify for conventional mortgages.

Borrowers can qualify for FHA loans with credit scores starting at 500 and down payments as low as 3.5% with a 580 credit score. The loans feature low down payment options and more flexible underwriting guidelines compared to conventional mortgages. While FHA lending presents an excellent chance for buyers to get into a new home, the program does have some drawbacks. Borrowers will pay an upfront mortgage insurance premium and higher ongoing mortgage insurance costs. In competitive markets, FHA loans may also be less attractive to sellers.

FHA Title I vs. Title II Loans

Two types of FHA loans can be used to finance a manufactured home – FHA Title I and Title II mortgages. Title I FHA loans offer more flexibility since the home does not need to be permanently attached to the land Title II loans do require permanent attachment along with ownership of the land where the home sits. Most lenders, including Rocket Mortgage, offer manufactured home loans under the Title II program which features better terms and lower costs

Requirements for FHA Manufactured Home Loans

When applying for an FHA loan to purchase a manufactured home, the property and borrower must meet certain criteria. Here are some key requirements:

• HUD Building Code – The manufactured home must comply with HUD construction and safety standards. Requirements cover living space size, exterior certification labels, removal of the towing hitch, and more.

• Permanent Foundation – Under Title II, the home must be permanently affixed to the land. It must be taxed as real estate with access to water, sewer, electricity and road infrastructure. A foundation inspection is also required.

• Land Ownership – For Title II loans, you must own the land on which the home sits. Title to the land will be included with the home in the mortgage documents.

• Principal Residence – You must intend to use the home as your primary residence, not as a secondary home or investment property.

• Credit Score – FHA loans allow credit scores starting at 500, but most lenders require at least 580 for 3.5% down payment.

• Down Payment – Options range from 3.5% down for 580+ credit score up to 10% down for 500-579 credit score.

Meeting these requirements ensures the home and loan meet FHA standards for insurance approval.

Pros and Cons of FHA Loans for Manufactured Homes

FHA loans offer many benefits that make them a preferred financing choice for manufactured home buyers:

Pros

• Low down payments with options as low as 3.5%

• More flexible debt-to-income ratios up to 57%

• Lower credit scores allowed starting at 500

• Fixed rate loans help budgeting with steady payments

Cons

• Mortgage insurance premiums required adding to costs

• Loan limits may restrict borrowing amounts

• Slow underwriting can make offers less competitive

While FHA loans bring additional costs, the program provides an affordable path to homeownership that would be difficult through conventional financing.

Applying for an FHA Manufactured Home Loan

The process of getting approved for an FHA loan on a manufactured home follows similar steps as financing a traditional site-built house. Here is an overview of what to expect:

• Find a manufactured home meeting HUD requirements
• Select a lender approved for FHA lending
• Complete loan application providing financial, employment and identification details
• Allow lender to retrieve credit report and verify details
• Get home appraised to confirm value supports purchase price
• Provide documentation proving income, assets and eligibility
• Receive final loan decision after underwriting
• Review closing disclosure detailing costs
• Sign loan documents and close on new home

While the steps look similar, extra diligence is required to ensure the home complies with HUD standards for FHA loans. Working with a knowledgeable lender familiar with manufactured home requirements can help streamline the process.

Finding the Right FHA Lender

Connecting with the right lender makes a big difference when trying to get approved for an FHA manufactured home loan. Be sure to choose an FHA-approved lender experienced with financing manufactured houses. Here are some tips for picking the best lender:

• Ask about their specific experience with manufactured home loans
• Confirm they are approving FHA loans daily
• See if they have dedicated manufactured housing loan specialists
• Look for educational content showing their expertise
• Review online reputation through customer reviews
• Compare interest rates and fees between lenders

While FHA lenders must follow program guidelines, individual lender requirements can vary. Checking their recent loan volume and specialized experience helps identify lenders savvy with manufactured home intricacies.

Manufactured Home Foundation Requirements

Since FHA Title II loans mandate permanent installation, having the proper foundation is imperative. Manufactured houses use one of three foundation types:

Pier and Ground Anchor – Steel piers driven into the ground are connected by straps to the steel frame underneath the house. Best for areas with stable soils without frost concerns.

Perimeter Wall – Concrete footer and masonry block or poured concrete perimeter wall on top of footer surrounds the home providing support. Common where freeze-thaw cycles occur.

Poured Concrete Slab – Solid concrete slab with embedded anchors connects to home frame. Provides the greatest structural stability but site prep is extensive.

Whichever foundation, an inspection by a licensed professional engineer or registered architect is required by FHA to get the home financing approved. Proper site preparation and foundation construction prevent structural issues that could jeopardize the home.

Understanding FHA Loan Costs

FHA loans feature low down payments but do come with extra fees that impact long term costs. Here are key costs to understand when considering an FHA manufactured home loan:

Upfront Mortgage Insurance Premium – An upfront fee equal to 1.75% of the loan amount is charged and can be financed into the loan. On a $100,000 loan, this equates to $1,750 at closing.

Annual Mortgage Insurance Premium – On top of monthly principal and interest, an annual mortgage insurance premium ranging from .45% to 1.05% is charged based on loan amount and term. This premium is paid monthly as part of the total mortgage payment.

Interest Rate – FHA rates are competitive but sometimes slightly higher than conventional loans, adding to interest costs over the loan’s term.

Ongoing Mortgage Insurance – FHA mortgage insurance premiums are charged for the full loan term instead of being eliminated at 20% equity like private mortgage insurance.

While FHA loans allow smaller down payments, the mortgage insurance and interest expenses make them ultimately more expensive than conventional financing.

The Bottom Line

For homebuyers seeking an affordable option, manufactured houses paired with FHA loans can be a great combination. FHA mortgages feature flexible qualifying guidelines and low down payment options opening homeownership opportunities that might not exist through conventional lending channels. Just be sure to choose an experienced lender and inspect any manufactured home thoroughly before purchasing to avoid unwanted surprises. With the right home and loan, you can join the ranks of happy manufactured home owners.