MH FINANCING: Manufactured Home Capsule Loan Types Dependent On Placement Site Circumstances
The following are brief descriptive capsules of the most preferred loan types available to manufactured home purchasers, as well as other financing programs that may or may not serve the interest of manufactured home retailers.
Note: Manufactured home financing program terms, interest rates, conditions and availability are subject to change from time to time, as well as introductions of new programs in the future.
Home Only Purchase Loans
Home only loans (chattel) are personal property loans made for purchase of a new manufactured home that is not permanently attached to real estate and not encumbered into the loan.
Typically, home only loans are the most common type of financing for manufactured and mobile homes sited in land-lease communities (a.k.a. manufactured home/mobile home parks)
Home only loans are also the least complicated, most efficient, require less documentation and are, by far, the most expedient loan types.
Typically, home only (chattel) loans require a minimum down payment between 5 to 20 percent of the total purchase price with an interest rate 2 to 5 percent higher than a mortgage loan. Maturity terms are usually 15 to 20 years.
Land/Home Purchase Loans
Buying property and a new manufactured home or modular home at the same time offers the buyer some big financing advantages.
Because real property is involved, a better mortgage may be arranged with a conventional mortgage. Land/home buyers can often save thousands of dollars compared to “home only” chattel loans.
Conventional loans do require more documentation and a more detailed process, but the money saved by the borrower may be worth it.
Land-in-lieu Financing
Most manufactured home lenders will offer a hybrid loan that finances the home as a chattel loan combined with a real estate loan secured by the property by the property where the home is sited.
The most common utilization of land/home financing is wherein the home purchaser refinances the owned land with equity used in lieu of the manufactured home down payment or an outright purchase.
Construction Loans
Conventional mortgage construction financing is available by many of the traditional manufactured home lenders. The process is similar to loans made for site-built homes. A construction loan for a manufactured home is a temporary bridge to a permanent one which is combined with either an FHA loan or a conventional loan.
The mortgage lender funds a pre-arranged disbursement schedule (draws) to contractors, including the seller, as per the agreed upon time frame completion schedule. Home buyers will pay interest on the amount of construction funds dispersed.
The preferred construction loan for independent retailers is the one time construction loan with the lender scheduling the payment for the manufactured home upon delivery to site as the first draw, with subsequent pre-scheduled draws as contractors complete each element of the construction.
Additional Finance/Loan Programs Available
End Loans – An end loan, whereby the retailer serves as the general contractor and absorbs all of the interim expenses involved without reimbursement from the lender until the construction project is complete. An end loan can have devastating circumstances to an independent retailer without a construction entity in place specializing in this type of
undertaking.
FHA Loans – FHA loans will offer value for a retailer who specializes in the program’s nuances and is adept at avoiding the “potholes” associated with governmental regulations, or a retailer specializing in placing recurring home sales within a particular geographical area or a land/home development. A typical independent retailer should “tread lightly.”
Truism: “There are no half measures with government backed loans. You are either an expert or you aren’t and you’re doing a lot of them, or it’s going to go very poorly.” Our suggestion to retailers: always look to conventional loans first – then FHA.
