Deciding Factors of Manufactured Home Financing
Manufactured homes are a great choice for many people. They offer the same functionality at a fraction of the cost of the cost as a site-built home. But it’s important to know what to look for concerning manufactured home financing.
Of course, manufactured homes are not perfect. There are a few well-known complaints regarding factory-built homes: an absence of exterior sheathing, particle board sub-flooring, and those dreadful vinyl covered walls. Luckily, every construction and any aesthetic issue can be changed or upgraded.
Another issue, and this is an important one, is the difficulty in obtaining financing and insurance for a manufactured home. With this article, we’ll help you learn how to find the best financing for your manufactured home.
Manufactured Home Financing Options
Typically, there are two options available for manufactured home financing. Private financial institutions, such as a local bank or credit union, and dealer financing, available ‘directly’ from the home dealer. We say directly because the dealer isn’t the financier themselves, it’s usually a sister company owned by the same organization that owns the builder, the dealer, and the finance company – all with different names. Clayton Home’s finance company, for example, is Vanderbilt Mortgage and Finance, Inc.
In-house manufactured home financing, or dealer financing, typically have higher interest rates but they are available to people with less than perfect credit. As long as the buyer understands what they are getting into, and have researched the terms thoroughly, it can be a viable way to home ownership.
Personal Property vs. Real Property
In addition to the two types of financing available for manufactured homes, private and dealer, there are also two types of loans – personal property and real property.
Personal property loans are the same type of loans you get when you buy a car or a boat. They have shorter terms and higher interest. Real property loans are mortgages, just like you get when you buy a site-built home.
If you put a manufactured home on a rented lot you will only be eligible for a personal loan. If you own land, you have a chance of obtaining a real property loan, or mortgage.
Key Financing Considerations for Manufactured Home Financing
Your credit score, or FICO score, will be a huge factor in securing financing for a manufactured home. Per Wikipedia, a credit score is a numerical expression based on a level analysis of a person’s credit files, to represent the creditworthiness of the person. A credit score is primarily based on a credit report information typically sourced from credit bureaus.
Most private financiers I’ve researched requires a minimum credit score of 630 to be considered for a manufactured home loan. Find your credit score by contacting the following agencies:
The amount you have available to put down on your manufactured home is important. I’ve noticed that most financiers require a minimum of 5% down but the more you have, the better chance you have of getting financed in and getting a lower interest rate.
Type and Size of Home
The type of home, whether a single wide or double wide, could be a deciding factor in your financing. Obviously, double wides are more expensive than single wides so that’s going to be a big factor.
The type of home can play a factor in other aspects of the financing too. Perhaps single wides lose value faster than double wides in your area, or vice versa. Financiers have a lot of information and statistical data available to them and they can and will use it to make their investments work to their advantage.
Permanently Installed Manufactured Homes
Due to the perceived high risk of financing a manufactured home, lenders invoke more stringent terms for factory-built homes than they do for site-built homes so whether your home is permanently installed or not is a large factor when trying to obtain a manufactured home loan.
For starters, if you do not own land and have your home installed on a rented lot, you cannot qualify for a mortgage. In this case, the lender considers the home as personal property, and thus the financing as a personal loan. This attracts high-interest rates and shorter payment periods. However, if you own land, lenders consider the manufactured home as real property and thus are eligible for a mortgage.
Homes that are permanently installed on land owned by the homeowner can be considered and classified as real property in most states. Keep in mind, a permanently installed manufactured home means that the tie-downs and straps on the home were properly installed and meet your state or local codes. The skirting, whether it be brick or vinyl, doesn’t really matter – it’s all about the straps and the foundation.
A home that is permanently installed can also be taxed as real property instead of personal property so you can be looking at a higher tax.
Land and Location
Homes installed on the owner’s land are more appealing to private financiers. Homes that will be placed on a rented lot seems to be a bit harder to find financing. This is where dealer financing would be an ideal resource.
The primary feature of manufactured homes is the placement on either rented or owned land. The rentals and sales vary by area, with the high-end locations fetching a higher price, and thus more financing. Prospective homeowners in the rural areas will often bundle the house with the land in the package. This is, however, a predicament for those seeking a manufactured home in the urban areas due to the high land cost. In such instances, the borrowers usually rent lots in the mobile parks for the installations.
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