Down Payment and Credit Score Myths Holding Back First-Time Manufactured Home Buyers
“It Always Seems Impossible Until It’s Done” — Nelson Mandella
The goal of homeownership is still a huge part of the American Dream. For many first-time homebuyers, the realization of that dream is seemingly unattainable due to the high home costs and financing qualifications associated with homeownership – in the traditional sense.
Most of those aspirations to own a home are centered around acquiring a traditional site-built home with a price beyond the reality of their financial capabilities. Unfortunately, many will seemingly be forced to forestall or forfeit the dream. Fortunately, others will discover another form of housing that is equal in every respect to that site-built home but will have a cost up to 50% less than building a new home on-site or purchasing an existing pre-owned home. That home is today’s modern new manufactured home.
Choosing manufactured homeownership may solve two obstacles inherent when purchasing a site-built home, the amount of downpayment and your credit score needed to qualify for financing.
The 20% down payment myth: Saving for a down payment is one of the biggest obstacles faced by first-time home buyers. Overcoming the supposed 20 percent down payment myth, and the savings realized from becoming a manufactured homeowner could open the path to high-quality affordable homeownership.
The percent of down payment requirements for a manufactured home and/or a modular home will parallel that of a traditional site-built home if permanently sited with a permanent foundation on property owned by the home purchaser.
Most homebuyers overestimate how much they will need for a down payment to qualify for a home loan, believing they need a 20% down payment. According to a recent First American article:
“Americans still overestimate the qualifications needed to get a mortgage, resulting in qualified potential buyers not even considering homeownership. Indeed, the Urban Institute report revealed that 16 percent believed the minimum down payment required by lenders is 20 percent or more, and another 40% didn’t know at all.”
While many potential buyers still think they need to put at least 20% down for the home of their dreams, they often don’t realize how many assistance programs are available with as little as 3% down. With a little research, many renters may actually be able to enter the housing market sooner than ever imagined.
Minimum down payment requirements when manufactured homes are not attached to real estate will be as little as 5% of the home purchase price. In 2019, it is estimated that more than 70% of manufactured home borrowers also owned the land where home is sited, financing their purchase with a chattel (home-only) loan, not encumbering the land upon which the home is sited. A manufactured home chattel loan is the quickest, easiest to obtain, the most efficient and least expensive route to the realization of the dream of quality homeownership.
Many potential manufactured home buyers are surprised that a 5% down payment is commonly offered by most chattel loan lenders. The majority of those seeking homeownership are pleasantly surprised by the realization that the 5% down payment is indeed possible. Often these lenders will also consider verifiable “gifted down payments” and land-in lieu down payments.
Financing the manufactured home with a “home only” loan entails a higher interest rate but is obviously preferred by most first-time homebuyers because the reduced initial investment (down payment) will be considerably less as a result of the total consideration (sales price) being much lower, the land is not encumbered, monthly payments will be much less and the time frame to “turn-key” occupancy will be considerably shortened.
Typically a lender will issue an approval within a few days of application submission, the home will be custom built to your wants and needs and shipped to your prepared site and ready for occupancy within a few weeks following lender approval. The processes involved with a home- only loan are more efficient and much less cumbersome for the home buyer than a land home mortgage.
Buyers often assume they will need a minimum 700 FICO credit score: In addition to down payment myths, buyers are often confused about their credit score, assuming that any score below 700 will be disqualifying when purchasing a home.
In fact, a survey of manufactured home lenders found that the lowest score acceptable for approval is around 575 FICO, with some as low as 500 FICO.
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