Everything You Need to Know About FHA Title 2 Loans

If you’re looking for an alternative to a traditional, site-built home, you may want to consider financing a mobile home through the FHA manufactured home loan program. Sometimes called an FHA loan for a mobile home, this government-backed mortgage option allows borrowers with imperfect credit to purchase an affordable home.

FHA Title 2 loans are a popular mortgage option for many homebuyers. As the name suggests, these government-backed loans fall under Title 2 of the National Housing Act and are insured by the Federal Housing Administration (FHA).

In this comprehensive guide, we’ll cover everything you need to know about FHA Title 2 loans, including:

What is an FHA Title 2 Loan?
Benefits of FHA Title 2 Loans
Types of FHA Title 2 Loans
FHA Title 2 Loan Requirements
How to Apply for an FHA Title 2 Loan
Pros and Cons of FHA Title 2 Loans

Let’s get started!

What is an FHA Title 2 Loan?

An FHA Title 2 loan is a mortgage insured by the FHA to purchase or refinance a primary residence. Title 2 loans were created in 1934 under the National Housing Act to make homeownership more accessible during the Great Depression by protecting lenders from default.

Today, FHA Title 2 loans make up a significant portion of the mortgage market and help borrowers with low down payments, lower credit scores, or unique circumstances secure home financing.

With an FHA-insured loan, the federal government provides a guarantee to the lender that minimizes their risk if the borrower defaults. This allows lenders to offer more flexible underwriting standards without taking on excessive risk.

FHA Title 2 loans are not provided directly by the FHA. You must work with an FHA-approved lender to obtain this type of mortgage. The lender will submit your application and documentation to the FHA to secure the government backing.

Benefits of FHA Title 2 Loans

There are many advantages to FHA Title 2 loans that make them appealing to buyers who may not qualify for conventional mortgages:

Low Down Payment: FHA loans require a minimum down payment of just 3.5%. This makes it easier for first-time buyers or those without a lot of cash savings to purchase a home.
Flexible Credit Requirements: You can qualify for an FHA loan with a credit score as low as 500 with a 10% down payment or 580 with 3.5% down. This provides options for those will less-than-perfect credit.
Low Monthly Insurance: FHA loans require mortgage insurance, but the annual premiums are lower than with conventional loans. This helps keep payments affordable.
Fixed Interest Rates: FHA loans come with fixed rates that protect borrowers from unpredictable rate hikes over the life of the loan.
Low Closing Costs: FHA loans limit the types of fees lenders can charge, keeping closing costs lower than other loan types.
Assumable Financing: FHA loans can be assumed by a new buyer when you sell, making your home more marketable.

Types of FHA Title 2 Loans

There are a few different loan programs that fall under the FHA Title 2 umbrella:

FHA 203(b) Mortgage

This is the most common FHA loan program used by homebuyers. It can be used to purchase a primary residence with a low down payment. 203(b) loans have maximum loan limits that vary by metro area.

FHA 203(k) Rehab Mortgage

The FHA 203(k) loan allows buyers to roll renovation costs into their mortgage to “purchase and rehabilitate” a home. This helps make rundown properties more affordable.

FHA Streamline Refinance

Existing FHA loan holders can refinance into a new FHA mortgage without requiring new appraisals or documentation through the Streamline program. This helps reduce closing costs.

FHA Home Equity Conversion Mortgage (HECM)

Reverse mortgages that allow seniors 62+ to access home equity without having to make monthly payments are also insured by the FHA under Title 2.

FHA Title 2 Loan Requirements

While FHA loans are more flexible than conventional mortgages, you still need to meet certain requirements to qualify:

Downpayment: At least 3.5% downpayment required. Can go as low as 1.75% with help from a state or local program.
Credit Score: Minimum 500 credit score but must put 10% down. 580 score required for 3.5% downpayment.
Debt-to-Income Ratio: Your total monthly debt payments, including the new mortgage, cannot exceed 43% of your gross monthly income.
Home Requirements: The home must be your primary residence and meet FHA property standards. Condos must be FHA approved.
Loan Limits: Vary by metro area but typically around $650,000 for high cost areas, $420,000 for moderate cost areas in 2023.
Mortgage Insurance: Upfront and annual mortgage insurance premiums required over life of the loan.
First-Time Homebuyer: No first-time homebuyer requirement but all borrowers must have two years of steady income/employment.
Homeownership Education: Required for first-time homebuyers to improve financial literacy.

How to Apply for an FHA Title 2 Loan

Applying for an FHA loan is similar to other mortgages, just with some extra steps:

Check your eligibility: Review the minimum FHA requirements above to see if you might qualify.
Compare lender quotes: Get rate and fee quotes from 3-5 lenders who offer FHA loans to find the best deal.
Complete the loan application: Provide financial documents like tax returns, bank statements, and pay stubs. Authorize the lender to pull your credit report.
Get pre-approved: The lender will review your info and issue a pre-approval letter if you qualify in principle. This helps strengthen offers.
Make an offer: With your pre-approval letter, you can confidently make offers on homes you want to purchase.
Allow extra time: It takes longer to process and underwrite an FHA loan, so allow a few extra weeks between offer and closing. Be patient!
Close on your new home: Final loan approval will come a week or so before the closing date. Then just sign the final paperwork to get the keys!

Pros and Cons of FHA Title 2 Loans

FHA loans can be a great option for eligible homebuyers, but they aren’t right for everyone. Here are some key pros and cons to consider:

Pros

Low down payment requirements
More flexible credit score and DTI standards
Lower monthly mortgage insurance
Fixed interest rates and predictable payments
Lower closing costs than conventional loans
Can be assumed by new buyers when you sell

Cons

Require mortgage insurance for life of the loan
Higher upfront mortgage insurance premium
Stricter criteria for condos/condo projects
Slower processing and underwriting times
Lower max loan limits in some areas
Must be owner-occupied primary residence

Carefully weigh the pros and cons based on your specific homebuying goals and financial situation. An FHA loan can be a great way for credit-challenged borrowers to break into homeownership. But shop around for different loan options if you have a higher credit score or substantial assets.

Wrap Up

What is an FHA manufactured home loan?

An FHA manufactured home loan is a mortgage backed by the Federal Housing Administration (FHA) that you can use to purchase a home built in a factory. If you need to, you can also use the loan to buy a plot of land for the home to sit on.

You may know this type of house as a “mobile home,” but that isn’t the term used by the FHA today. FHA-eligible mobile homes are typically called manufactured homes and have to follow standards set in 1976 by the U.S. Department of Housing and Urban Development (HUD). Homes built before June 15, 1976, aren’t eligible for FHA financing.

You need to meet FHA minimum mortgage standards as a borrower, and your manufactured home and the land it sits on have to meet special property and construction requirements, all explained in more detail below.

What are my FHA manufactured home loan options?

There are two types of FHA manufactured home loans: the Title II FHA loan program and the FHA Title I program.

With the Title II FHA loan program:

You can finance a new manufactured home, the cost of transporting it to its permanent location and any costs associated with installation.
You can take steps to refinance an existing loan you borrowed to purchase a manufactured home, as long as the home has been installed at the site for at least a year.
Your home must be permanently attached to land that you own.

With the FHA Title I loan program:

You can finance a new or used manufactured home, even if you don’t own the land it’s sitting on.
You can finance a site for a manufactured home to sit on.
You can finance repairs or improvements to a manufactured home you already own, as long as you own the lot it sits on.
You can refinance both a manufactured home and lot, or either one separately.
Your home doesn’t have to be, but can be, permanently attached to land.

You can apply for a manufactured home loan directly with an FHA-approved lender or go through a dealer, who can help you apply. Much like cars, manufactured homes are usually sold through a dealer.

Can You Have 2 FHA Loans

FAQ

What is a title 2 FHA loan?

Federal Housing Administration (FHA) loans, including those issued through Title II, are guaranteed by the government and designed for homeowners who may have lower-than-average credit scores and aren’t able to come up with enough money for a more substantial down payment.

What is the difference between FHA title 1 and title 2?

A Title I lender ID is issued to lenders that process or service loans for property improvements and the purchase of manufactured housing. Lenders who are issued a Title II lender ID process or service loans for single family homes. A lender may be approved by HUD for both Title I and Title II.

What is the 2 FHA loan rule?

A second FHA loan may be allowable for homebuyers who meet these qualifying criteria: You’re relocating for a new job and need a new primary residence. The new home is more than 100 miles away from your current FHA-financed home. You’re getting a divorce and you intend to purchase a new home in your name only.

Will an FHA loan cover a manufactured home?

With the FHA Title I loan program: You can finance a new or used manufactured home, even if you don’t own the land it’s sitting on. You can finance a site for a manufactured home to sit on. You can finance repairs or improvements to a manufactured home you already own, as long as you own the lot it sits on.

What is an FHA single family Title II?

An FHA Single Family Title II is a type of mortgage insured by the FHA under Title II of the National Housing Act of 1934 for a single family. Title II loans are a low-risk proposition for lenders because the government insures them against a borrower defaulting on the mortgage.

Can I get a Title II loan from the FHA?

You can’t apply for Title II loans directly from the FHA. Instead, you’ll need to find a lender that offers mortgage loans that are FHA-backed through the Title II program. The application process is similar to that of a standard mortgage loan, though the lender will check to be sure that the home you’re buying meets Title II requirements.

What is a Title II loan?

Title II loans are designed for borrowers who may not be able to access enough cash for a big down payment and who have a lower-than-average credit score. In general, borrowers will find that an FHA loan is much easier to obtain than a standard mortgage.

Are FHA Title II loans a low-risk option?

Title II loans are a low-risk proposition for lenders because the government insures them against a borrower defaulting on the mortgage. In other words, FHA Title II loans (whether for a single-family home or another type of property) have favorable conditions for consumers with less-than-perfect credit histories.