Getting a Loan to Purchase Land and a Manufactured Home: A Complete Guide

Home prices have risen sharply over the last three years, leaving many families unable to afford a traditional site-built home. So some homebuyers have turned to mobile and manufactured homes as a more budget-friendly housing alternative.

However, the financing models designed for traditional single-family homes don’t always translate well to mobile and manufactured homes. It’s crucial to understand how these homes are financed, as well as the terms and details of the loan before you make a purchasing decision.

Research Lenders and Loan Types

Once you locate a manufactured home you’d like to purchase, start shopping around for lenders. Certain homes will only be eligible for certain loans, so finding the house first may eliminate a few lenders from your shortlist. Compare the different terms, interest rates and other requirements of each type of loan. Look for customer reviews to ensure the lenders you consider have a trustworthy reputation.

Getting prequalified with multiple lenders is advantageous because they will compete for your business, and you can ask each to meet or beat the terms offered by the other.

When you’ve collected multiple loan offers, compare the interest rates, terms and fees to determine which one comes out ahead. Calculate the total cost of the loan over time by adding up all the closing costs, private mortgage insurance (if applicable), interest and fees.

Once you’ve selected your loan, submit a final loan application with all the documents your lender requires. Be prepared to pay for any closing costs and/or down payment expenses that aren’t rolled into the loan.

>> Related: Learn more about documents required for a loan

Financing Options for Mobile Homes

While they are much less expensive than their stick-built counterparts, manufactured homes often cost enough to require most people to finance the purchase. However, many states consider manufactured homes to be personal property rather than real estate, complicating the options for financing. Here are a few financing options for mobile and manufactured homes.

FHA loans are a core financing option for first-time and low- to moderate-income homebuyers, and they can be used for many manufactured homes through the Title I program. (Note that the FHA does not issue mortgages on mobile homes built before June 15, 1976.) The FHA doesn’t issue these loans; private lenders (banks, credit unions and online lenders) extend loans that the FHA insures against default.

One major benefit of an FHA loan is the low down payment requirements, which are 5% for borrowers with credit scores above 500 and 10% for those with scores below 500. In certain cases, down payments can be as low as 3.5%. Loans can be used for the manufactured home, the lot the home will live on or both. Limits for loans on these purchases are $69,678, $23,226 and $92,904, respectively. FHA loans are fixed-rate only, and the repayment terms may span up to 20 years for single-family manufactured homes.

There are a few other stipulations for this type of financing. Like other FHA loans, borrowers must intend to occupy the home as a primary residence and should have a debt-to-income (DTI) ratio of no more than 43% (or 45% if the home is Energy Star compliant). Buyers must also pay a private mortgage insurance premium each month (which is no more than 1% of the principal balance). Lenders can also charge the homebuyer an upfront mortgage insurance premium of no more than 2.25% of the loan amount.

Despite some of the fees and regulations that come with FHA loans, they can be an affordable financing option for lower-income buyers who might have a hard time coming up with a down payment.

Fannie Mae is a government-sponsored enterprise (GSE) that buys mortgages for manufactured and other homes. While this entity doesn’t issue loans directly, the mortgages created by private lenders must conform to Fannie Mae’s regulations. Most large mortgage lenders offer this type of conforming loan, often calling it a “conventional mortgage.” You can ask your mortgage lender about this specific type of loan, but in many cases, they’ll direct you to them without needing to ask.

Fannie Mae mortgages can only be used in states where manufactured homes are considered real estate, but they can be used for primary residences, second homes and cash-out refinances.

Borrowers must have a credit score of 620 or higher to qualify. For primary residences, borrowers must put down a minimum of 5% for a fixed-rate mortgage (10% for an adjustable rate). Loans can be for up to 20 years.

The Fannie Mae MH Advantage program offers even more incentives than its standard program, including a 3% down payment minimum, low interest rates, price adjustments and cancellable mortgage insurance once the borrower reaches 20% equity. In exchange for these favorable terms, manufactured homes must meet a more stringent set of requirements, which include owning the land you put the home on and purchasing a home with an MH Advantage sticker (which designates that the design has been approved for this kind of financing). The home must also be multi-width (i.e., wider than a single-wide).

The MH Advantage program is ideal for homes and lots that are similar to site-built homes. In contrast, Fannie Mae’s standard mortgages can be suited to a broader range of manufactured homes, albeit without several advantages.

Freddie Mac is another GSE that has similar requirements to Fannie Mae’s, with a few key differences. Manufactured homes on leased land are ineligible for Freddie Mac’s mortgage program (unless some very specific criteria are met), as are homes that have previously been installed elsewhere.

As with Fannie Mae mortgages, down payments are generally 5%, and these loans can be fixed-rate or adjustable-rate mortgages. In addition to the typical mortgage fees, Freddie Mac loans have an added 1% delivery fee. There is no published credit score minimum for Freddie Mac’s manufactured home mortgages.

Like Fannie Mae, Freddie Mac does not offer loans directly. Instead, you’ll get them from a traditional mortgage lender, often under the banner of “conventional mortgage.” Smaller community banks and credit unions tend to offer conventional loans through Freddie Mac, rather than Fannie Mae, which typically works with large commercial banks.

The Department of Veterans Affairs backs VA loans, which are only available to qualifying service members or veterans of the U.S. Armed Forces or their surviving spouses. VA loans offer many advantages, including no down payment requirement, low interest rates, fewer closing costs and no private mortgage insurance requirement.

VA loans typically require that the manufactured home be placed on land the buyer owns, but the land purchase can be wrapped into the mortgage for the home. Borrowers must also pay the VA funding fee which is between 1% and 3.3%, depending on the terms of your loan.

If you’re in or have been in the military, a VA loan may be a fantastic option for financing a manufactured home, provided that you already own or are purchasing the land where the home will reside.

Chattel loans are typically used for large or expensive pieces of personal property that require financing (like boats, private jets or tractors). Chattel loans are a secured financing option in states that do not consider manufactured homes to be real estate. The financed purchase (the mobile home, in this case) backs the loan and can be repossessed in the case of default. Most chattel loans carry high interest that is 3-4% higher than you’d get with a typical mortgage, which could eat into the affordability of a mobile home as a housing option.

Also, as the name suggests, chattel loans are for chattel only — not the land they sit on. So, if you want to buy land with your mobile home, you may need separate financing for that portion of the purchase. On the plus side, chattel loans have lower processing fees than traditional mortgages. However, they generally have shorter repayment periods and lower maximum loan amounts, which could present a challenge depending on your financial situation.

Buyers interested in true mobile homes (built before 1976) or other manufactured homes that do not qualify for conventional mortgages may be able to acquire them through a chattel loan.

One of the chief difficulties with financing a manufactured home is that some states consider them personal property rather than real estate. This effectively eliminates the option to get a mortgage to buy a manufactured home. However, many people get around this issue by taking out personal loans instead of mortgages.

One advantage of personal loans is that the home does not secure them, so even if you get behind on payments, the lender cannot foreclose on your home. Another positive for personal loans is that you can skip many of the fees associated with mortgages. Your personal loan will likely have an origination fee, but it won’t require an appraisal, inspection or other fees that a traditional mortgage does. Approval and disbursement of funds often happen much faster for personal loans than mortgages.

On the other hand, the interest rates on personal loans are typically higher than those of mortgages. Banks often have limits of around $50,000 for personal loans, so finding a lender that will cover the majority or all of the cost of your manufactured home (and the lot, if needed) may be difficult.

If you can find a great bargain on a manufactured home and your state doesn’t consider it to be real estate, a personal loan may be an option to close the deal.

>> Related: Learn more about requirements for a loan

Financing a Manufactured Home: What you need to know

FAQ

Why is it harder to get a loan for a manufactured home?

Who is the best lender for manufactured homes?

Will an FHA loan cover a manufactured home?

Can I buy land and put a mobile home on it in California?

Can you get a mortgage on a mobile home?

Yes, many banks and credit unions finance mobile homes on land. These are usually considered real property loans. Some government-backed loan programs, like FHA Title II loans and certain VA loans, also allow for the financing of mobile homes along with the land they sit on. Can you get a mortgage on a manufactured home?

Can a manufactured home be financed with a mortgage?

Let’s take a look at both scenarios. If your manufactured home will be permanently connected to its land on a foundation, you can finance the purchase of your home and its land with one mortgage loan. Most commonly, you’ll take out a fixed-rate mortgage loan, one where the interest remains the same throughout the life of the mortgage.

Can a single mortgage loan buy a manufactured home?

You can use a single mortgage loan to simultaneously purchase a manufactured home and the land it’ll sit on. The way you go about this will depend on whether the manufactured home will be permanently attached to the land. Let’s take a look at both scenarios.

What is a manufactured home mortgage?

They may have higher interest rates, shorter loan terms, and different down payment and credit score requirements. Manufactured home mortgages can be used to finance both the purchase of the manufactured home itself and the land it will be placed on, or just the home only if it will be located in a rented lot or mobile home park.