Key takeaways
- Insured by the Federal Housing Administration, FHA manufactured home loans are available in two types: Title I and Title II. The biggest difference between these two different types is the land that the manufactured home is placed on.
- While often referred to as mobile homes, manufactured homes are no longer made to be mobile, and the FHA will only offer to finance homes built after June 15th, 1976.
- In order to qualify for an FHA manufactured home mortgage, the manufactured home must conform to the Manufactured Home Construction and Safety Standards set in place by the Department of Housing and Urban Development or HUD.
What is a manufactured home?
Manufactured homes, often referred to as mobile homes, are homes built in a factory and can come in multiple pieces put together at their location. They are built to the national HUD code and must contain a red HUD certification label on each section. The home must be connected to water, sewer, and electric power and have a source of heating. They must be a single-family dwelling and can be placed on a rented piece of land, such as in a manufactured home park, or on a piece of land owned by the buyer.
Manufactured homes vs. modular homes
Manufactured, or mobile homes, are built to the HUD Code and require that the home be constructed on a permanent chassis. Modular homes are constructed following the same state, local, or regional building codes that traditional stick-building construction follows. These homes are built in pieces without a permanent chassis and are transported to their location on flatbed trucks. Modular homes must be placed on a permanent foundation and will have a Data Plate attached to show the modular meets the strict building codes.
How FHA manufactured home loans work
FHA manufactured home loans work similarly to that of a traditional single-family home loan. The FHA offers two different loan programs for manufactured homes: Title I and Title II. With a Title I loan, you can expect more competitive rates and loan terms but the home must be permanently attached to land that you own. With Title II, you will have fewer financing choices with shorter terms, but the manufactured home does not have to be attached to the land you own. For example, with Title II, your manufactured home can be placed in a manufactured home lot that you lease.
What are FHA guidelines for manufactured homes?
FHA loans for manufactured homes follow similar guidelines to those required for a traditional “stick-built” home. Down payments can be as low as 3.5% with a higher credit score. While FHA loans are normally available for borrowers with credit scores as low as 500, manufactured home lenders often want a credit score of at least 640, especially for lower down payment options. Borrowers will need a debt-to-income ratio (DTI) with a maximum of 43%. The manufactured home must be used as the borrower’s primary residence and they will be required to have two types of mortgage insurance premiums. An upfront mortgage insurance premium (UFMIP) and an annual mortgage insurance premium (MIP).
Are you eligible?
Before considering an FHA manufactured home mortgage, you want to be sure you meet the eligibility guidelines for an FHA mortgage. Meeting these initial requirements will allow you to move forward and find a manufactured home that meets other specific guidelines.
FHA home loan requirements
FHA lenders have a variety of different requirements when it comes to purchasing a home, whether it is stick-built or manufactured. Here we take a look at these requirements and what is necessary to qualify for an FHA manufactured home mortgage.
Standard FHA requirements
The FHA has minimum property standards that must be in place for any FHA mortgage. These basic requirements focus on safety, security, and soundness. A home, whether stick-built or manufactured, must protect the health and safety of any occupants. In addition, the home should provide security to the occupants while being free of any physical deficiencies that affect the structural integrity of the home.
FHA manufactured home requirements
When it comes to specific requirements for a manufactured home, there are a lot more things to consider. These requirements include:
- The home must be built AFTER June 16th, 1976
- The home must sit on less than five acres of land
- It must adhere to the Manufactured Home Installation Standards
- There must be a red HUD certification plate attached to every section of the home
- The home must be a single-family dwelling
- The manufactured home must be more than 400 square feet
- The home must be connected to a water and sewer system approved by the FHA
- If the home is new, it must have a one-year warranty
Special FHA mobile home loan requirements
In some cases, your manufactured home may still be considered “mobile.” This happens when you decide to place your home on rented land or a non-permanent foundation. In this case, the land lease must be for a minimum of three years and renewable annually after the initial lease period.
Pros and cons of manufactured housing
Buying a manufactured home comes with a variety of pros and cons every borrower must consider.
Pros
- Affordability: Manufactured housing in today’s market typically costs up to 20 percent less than site-built construction, meaning you can get more home for your budget.
- New construction is predictable: Unlike cost overruns that are common with new site-built construction, manufactured home builders provide the upfront cost of a manufactured home, including delivery and set-up before construction begins, without the risk of price changes.
- Energy efficient and eco-friendly: By taking advantage of new technology, manufactured home builders incorporate environmentally friendly materials and technology in their construction while also working to provide energy-efficient methods that help homeowners keep utility costs down.
Cons
- Design: Unlike traditional stick-built homes where the sky is the limit when it comes to design options, manufactured homes are often limited to predetermined floor plans.
- Depreciation: Unlike traditional home construction that can appreciate over the years, manufactured homes depreciate. If you own the land your home is on, this can help minimize depreciation.
- Locations may be limited: Where you put your manufactured home can often be limited by zoning ordinances. Even if you own the specific property, if it is not zoned for manufactured homes, then you are out of luck.
Alternatives to FHA manufactured home loans
When it comes to financing a manufactured home, you are not limited to an FHA-approved loan. Other mortgage alternatives are available and, for those with higher credit scores, may offer better rates and terms.
Conventional loans
Conventional loans sponsored by Fannie Mae and Freddie Mac offer borrowers with higher credit scores much more favorable mortgage terms that include lower interest rates, down payments as low as 3%, and private mortgage insurance for a lower price than is offered with an FHA mortgage. The Fannie Mae MH Advantage loan offers qualified borrowers a 3% down option with reduced PMI while the Freddie Mac loan requires a minimum of 5% down but you can choose to buy the manufactured home as a primary or secondary home.
VA loans
For veterans and eligible military borrowers, a VA loan offers a guaranteed mortgage for 5% down. However, they do require that the home is permanently attached to land that the borrower owns.
USDA loans
For borrowers living in certain rural areas, a manufactured home loan from the U.S. Department of Agriculture may offer the perfect financing option. If you own land located in an eligible rural area, a USDA loan requires no down payment for a mortgage to purchase a manufactured home permanently placed on the rural property. Borrowers will, however, need to meet the USDA income requirements in order to qualify for this mortgage option.
Finding the best manufactured home loan
If you are considering a manufactured home, an FHA mortgage can be the best option for those with less-than-perfect credit. However, the other alternatives, such as USDA or conventional loans, can help save you money in the long run.
Navigating the homebuying process
Navigating the home-buying process can be difficult, but if you are considering a manufactured home, the additional requirements can often be overwhelming, especially for first-time home buyers. At Hero Home Programs, our goal is to help everyone achieve home ownership and our team of experts is here to help you find the best financing options for your new manufactured home. To learn more about how we can help make your home-buying process run smoothly, book a consultation today.
