With truly affordable homes getting harder and harder to find, many buyers (and agents) are looking at manufactured homes as lower-cost alternatives.
But, manufactured homes are not as easy to finance as many might hope. Here are just a few considerations.
Definition Of A Manufactured Home
Per our mortgage bank: “any dwelling unit built on a permanent chassis and attached to a permanent foundation system is a manufactured home. The manufactured home and the land on which it is situated must be titled as real property. Other factory-built housing (not built on a permanent chassis) – such as modular, prefabricated, panelized, or sectional housing is not considered manufactured housing.”
Per Fannie Mae and HUD, for the home to be eligible for mortgage financing, it needs to be:
- on a permanent foundation
- permanently hooked up to utilities
- on land that the borrower owns (not in a mobile home park or on a long-term lease, for example)
- a minimum of 400 square feet and at least 12 feet wide
- affixed with valid HUD data plates (metal plates attached to each section of the house)
Manufactured homes are not the same as modular homes, as mentioned above.
Modular homes may have some sections built in the factory similar to manufactured homes, but less of the overall home is assembled in the factory and more is assembled onsite.
More importantly though, modular home builders have to obtain all permits from the local county or permitting authority, while manufactured home builders work entirely through HUD.
Agents Often Confuse Modular, Factory-Built And Manufactured Homes
Agents frequently assume they are looking at a “manufactured home” when the homes either look “manufactured” or if there are references to “factory-built” or something similar in MLS comments or in county records.
This is an issue because manufactured homes are harder to appraise and require higher interest rates (explained below).
The key is to carefully look at the zoning and permitting, and to look for the “HUD Plates” that state it is a manufactured home.
We just had a deal for example where the agent was certain it was a manufactured home because county records contained the words “factory-built” but it was not a manufactured home per se, and thus much easier to finance.
Appraisals of manufactured homes must contain at least two comparable sales that are also manufactured homes.
This is often one of the most difficult requirements because manufactured-home-comps are few and far between in many areas – frequently making such homes very difficult if not nearly impossible to appraise.
In our experience, manufactured homes tend to appraise for far less than standard homes because the appraisals are so difficult, because financing is more difficult to obtain, and because of a stigma that seems to be attached to manufactured homes (justified or not).
Loan Guidelines Similar To Standard Housing
From a credit and loan-to-value perspective, manufactured housing financing is similar to standard property financing.
FHA buyers can put down only 3.5% and Fannie/Freddie buyers can put down as little as 5%.
I, however, know of no competitive jumbo options.
Both FHA and conforming loan programs have significant “hits” for manufactured housing financing. The pain is less for low balance loans or low-cost areas, but even those rates are anywhere from 1/4% to 1/2% higher than rates for standard homes.
And high balance or high-cost areas loans can see rates as much as 1% higher or more, particularly for FHA loans.
Manufactured homes are harder to finance but not impossible by any means; the appraisals are just much tougher and the rates are higher. But, the good news is that many homes that agents think are “manufactured” are actually not.
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