According to Reonomy, 17.7 million Americans live in mobile homes, equating to about 5.6% of the U.S. population. One would think that there was enough business there for banks to make refinancing a mobile home as simple as refinancing for a traditional site-built home.
On the contrary, though, refinancing a mobile home is not as easy as a traditional home. There are many loopholes to jump through, and not all lenders wish to participate in this type of restructuring.
Refinance Options Without Land
Though this article refers mainly to mobile homes, the same loan conditions apply for modular homes and manufactured homes; we will explain the differences in a minute. Most conventional VA and FHA loans for mobile homes and manufactured homes require you to have the house set on a permanent foundation and purchase the mobile home’s land. But if you’re leasing that land, you still have a couple of borrowing options.
Mobile homes are a term used before 1976 with minimal construction supervision and tend to have safety issues with the resale value of $10,000 or less. The term manufactured home was used after 1975 when construction regulations were established. These homes are mass-produced with prefabricated components, built to be finished off-site, and transferred as a single unit to a property it will reside on.
Not to be confused with a modular home. Modular homes must be built to local building codes, have custom-made components, made in sections off-site, and the completed units are transported to a building site and joined on a foundation. The average price per square foot is $100-$200 for an average price tag of $270,000.
Three Main Refinancing Options if You’re Leasing the Property Site
A home purchase will probably be the biggest purchase you make. A home mortgage is traditionally repaid over 15 or 30 years, but qualification is difficult. Mobile homes and manufactured home loans can be easier to get because the homes cost less, and you don’t have to buy the property they’re on outright. But refinancing will be much more difficult if you don’t own the home’s land.
A mobile home not attached to the land is not considered real property but chattel or personal property. So, if you lease the land your mobile home is on, you still have a couple of options.
FHA (Federal Housing Administration) Title 1 loans
This program ensures mortgage loans made by private lending institutions to finance the purchase of a new or used manufactured home.
HUD has been providing loan insurance on manufactured homes under Title I since 1969. By protecting mortgage lenders against the risk of default, HUD’s participation has encouraged them to finance manufactured homes, which had traditionally been financed as personal property through comparatively high-interest, short-term consumer installment loans.
The program thereby increases the availability of affordable financing and mortgages for buyers of manufactured homes. It allows buyers to finance their home purchase at a longer-term and lower interest rate than conventional loans.
According to the U.S. Department of Housing and Urban Development (HUD), a Title I loan may be used to purchase or refinance a manufactured home, a developed lot on which to place a manufactured home, or a manufactured home and lot in combination. They are available for first-time home buyers and repeat buyers as long as the borrower will reside in the home. The home must be used as the principal residence of the borrower.
Loans up to $7,500 for eligible properties require only a signature, meaning you won’t need a down payment. FHA Title 1 loans don’t have a prepayment penalty.
For a mobile home or manufactured home, you’ll be limited to $25,000 with a secured Title 1 loan. Loan terms can be as short as six months and as long as 20 years plus 32 days.
Any loan over $7,500 must be secured by a mortgage or deed of trust on the property. And the structure must have been completed and occupied for 90 days.
To qualify, you must:
- Use the mobile home as your primary residence
- Have it set on a permanent foundation, even if that’s on leased land
- Lease from an FHA-compliant site
- Have an FHA-eligible long-term lease
Manufactured Homes Located on Leased Lots
For Title I insured loans, borrowers are not required to purchase or own the land on which their manufactured home is placed. Instead, borrowers can lease a lot within a manufactured home community or mobile home park, such as a site lot. When the land/lot is leased, HUD requires the lessor to provide the manufactured homeowner with an initial lease term of 3 years. These lease terms are designed to protect homeowners if the lessors sell the land or close the park. In addition, the lease must provide that the homeowner will receive advance written notice of at least 180 days if the lease is to be terminated.
Maximum Loan Amount
- Mobile home only: $69,678
- Mobile home lot: $23,226
- Mobile home and lot: $92,904
Maximum Loan Term
- 20 years for a loan on a manufactured home or a single-section manufactured home and a lot
- 15 years for a manufactured home lot loan
- 25 years for a loan on a multi-section manufactured home and lot
Eligibility Requirements for an FHA Type 1 Loan
- The mobile home must have been in place and occupied for at least 90 days
- You need to own the mobile home or have a long-term property lease on the land where the home is located
- You must show that you’re able to repay the loan in regular monthly installments (lenders will check your credit report and verify your income)
- You must not be delinquent or in default on another federally backed loan program
- Your debt-to-income ratio must be 45% or less
Pros of an FHA Title 1 Loan
- No minimum credit score requirement
- No equity needed
- Unsecured loans are available
- Fixed interest rates
- Competitive rates
- FHA insures loans against losses and default, which encourages lenders to make the loans
Cons of an FHA Type 1 Loan
- You’ll have to use an FHA-approved lender.
- You’ll have to pay a mortgage insurance premium of $1 per $100 borrowed
- The loans are limited to spending for critical repairs, not fancy upgrades
A chattel mortgage is a loan for a manufactured home or other movable pieces of personal property, such as machinery or a vehicle. It is funded as private property and not real property. Thus, chattel loans are a good option for someone looking to refinance a mobile home without land or even heavy equipment.
If you have a chattel loan, mobile homeowners without land could save a significant amount of money by refinancing to a traditional mortgage. Unfortunately, this requires purchasing the land. Because of this, mortgage rates are often much higher than what you’d pay a mortgage lender. The result is a higher monthly payment.
These rates are significantly higher than the other options and range from 7.75% to 10%. Terms are 15 up to 20 years, and chattel loans require a typical minimum credit score of 575. These loans are smaller than conventional loans and tend to have higher rates, but they are also shorter in terms and more quickly paid off. The movable asset acts as a security to the loan.
Chattel loans have prepayment penalties, and some of the costs can be significant, so you will want to read the fine print before paying your loan off early. These types of loans can be both fixed or variable rates.
This video can help you learn more about chattel loans:
Can you use a personal loan to purchase or refinance a mobile home without land? In short, yes. You may want to assess why you might want to buy or refinance a mobile home without land in the first place. Buying a mobile home versus a traditional home has some advantages. First, they cost less than conventional homes and are built with less waste. They offer a sense of community in the mobile home parks, and the engineering has come a long way and is constructed with lousy weather in mind.
Obtaining a personal loan is the only other type of mobile home financing available without owning the land. Because mobile homes are usually much cheaper than traditional homes, you might be able to refinance using a personal loan.
There is a catch. Personal loans have higher interest rates than other loans. But you don’t have to provide any collateral, so your mobile home won’t be at risk if you default, the paperwork is usually more straightforward, and you won’t have to pay closing costs. You’ll also need a minimum credit score of 500 to qualify, and terms are usually limited to 12 years.
Many lenders will advance up to $100,000 to good borrowers, which is a nice chunk of change to purchase a lovely mobile home. According to the Census Bureau’s Manufactured Housing Survey, as of September 2021, the average sale price nationwide for new mobile homes was $78,800 for a single-wide and $141,300 for a double-wide.
There are two main reasons owners of manufactured homes are less likely to refinance than their site-built counterparts. They are smaller loans with more considerable fees, thereby producing fewer cost savings. And two, most manufactured homeowners with chattel loans rarely do mobile home refinancing because they have fewer options. They also have fewer options because inequitable financing opportunities between mobile home owners and traditional site-built homes widen homeownership gaps and economic divides.
You will need to make sure your new loan costs less than the current one, and you will want to use a mortgage refinance calculator to figure out whether you’ll be saving money on the mobile home refinance. Speak to a loan officer to decide which type of loan works best for you.
Types of Mobile Home Refinancing If You Own Land
- Conventional mortgage loans: Conventional loans are backed by Fannie Mae and Freddie Mac. Most borrowers will need a minimum credit score of 620 and at least 5% equity in the home to qualify. Conventional loans can be fixed-rate or adjustable, and you can get cash-out refinancing in some cases. Loan terms are up to 30 years.
- FHA Title II loans: Title II loans cannot be used for homes on leased land in manufactured home communities or mobile home parks. Down payments can be as low as 3.5 percent, and terms can last up to 30 years. You are not eligible if you aren’t planning to use some of the money as a property loan. (link to a source for the other requirements.)
- VA loans: Backed by the U.S. Department of Veterans Affairs, they offer ultra-low interest rates, but they’re only available for military veterans and service members. The maximum loan term is 25 years. In addition to military service, you’ll typically need a minimum credit score of 620.
- USDA loans: USDA loans are backed by the U.S. Department of Agriculture. They are designed to promote homeownership in under-developed parts of the U.S., so they’re only available in designated rural areas. The mobile home must be less than one year old.
Mobile Homes, Manufactured Homes and Modular Homes: What’s the Difference?
- Manufactured homes: Manufactured homes are usually built in a factory. Traditional homes are built onsite. Once completed, manufactured homes are moved to their final destinations on a truck and placed onto foundations, making them permanent. You will need to own the land on which the manufactured home foundation is built.
- Modular homes: Modular homes are primarily constructed in a factory, but the house is transported in pieces to the home site, where construction is finished. Once built, a modular home can’t be moved. It can be single-width or double-wide.
- Mobile homes: A mobile home is also built in a factory but on a permanently attached chassis. It is then transported to the site by towing or on a trailer. You can rent mobile home space or own it. These can be single-wide homes or double-wide. They are often left permanently or semi-permanently in one place but can be moved. If your home was built after 1976, it is considered a manufactured home.
The Bottom Line
Refinancing your mobile home can be tricky, and there are several things to consider when looking to finance a mobile home without land. Deciding which financing works best for your situation and shopping around will help narrow down your choice for the best fit.
Traditional banks, credit unions, and online lenders may offer you a personal loan to purchase or refinance your new mobile home.
If your mobile home is permanently affixed to a foundation, it will be easier to refinance. Mobile homes not permanently attached to a foundation are considered “personal property” or chattel. That’s because they’re not considered “real property.” if this is the case, your primary option is a chattel loan.
It has to be affixed to the land to be considered real property. It comes with five different legal rights associated with ownership: the right of possession, the right of control, the right of exclusion, the right to quiet enjoyment, and the right of disposition. These rights are known as a “bundle of rights.”
Most individuals with manufactured homes end up renting land from a park or an individual. Hence, you own your home, but not the land it resides on. In this case, taxes are typically included with the cost of land rent. The landowner will then be responsible for paying the property taxes.
If the mobile home is on land that you own, your lender will most likely require escrow for the taxes. In this situation, a portion of the property taxes will be paid each month into a mortgage escrow account. The lender will then pay the taxes from the escrow account when they are due.
With a cash-out refinance, your existing mortgage is paid off and replaced by a new loan with a higher loan amount than what you owe on your home. You get the difference, minus any closing costs, as a lump sum payment to use as you wish.
Some of the more common reasons homeowners do a cash-out refinance are: to consolidate high-interest debt, pay for home improvements, lower their current interest rate, switch to a fixed rate, eliminate private mortgage insurance, invest in education, or purchase an investment property.