Mobile Home Financing: A Primer

Securing traditional financing for mobile homes and manufactured homes can sometimes seem difficult, especially in our current economical market. Whether the mobile home is new to you or being refinanced, lenders typically have stricter underwriting guidelines than more traditional site build homes.

Building codes changed in late 2005 after the severe hurricane season experienced in the Southern states. Mobile homes built after this date must follow a strict set of building guidelines; this helps to insure safety and a longer life span for those mobile homes built just months before. Safety improvements include stronger construction materials that better resist moisture, wind and fire, extra cross beams for support, plus dozens of additional building improvements.

Given this info, lets examine the various options available for financing your mobile home purchases.

Mobile Home Financing Options

Government backed loans: If you are interested in a brand new mobile home, then a local mobile home dealer or mobile home community will be able to direct you to a nearby financing agency/broker. They will approve you for a certain amount based on your credit history, job record, amount down, current debt, savings, etc. You can then take this approved amount to any mobile home dealer and purchase the new mobile home you want.

The Federal Housing Administration (FHA) and Veterans Association (VA) both have some level of financing available for mobile homes/manufactured homes. The subject property must be located or moved on a suitable site and attached to the ground conforming to current safety codes. Mobile homes attached to rented lots in a rented park may be approved if the mobile home community complies with FHA guidelines.

Conventional Financing: Most conventional lenders will not loan money to mobile homes located within a rented mobile home community. There is simply too much risk (I will explain why a little later). However you can find conventional lenders that will lend to mobile homes with land (meaning the land is owned by the borrower). Some requirements I have found in the past are that the subject mobile home is less than 15 years old, the borrower has 10%-20% down, over a 620 FICO score and an excellent job history.

A subset of conventional loans is the sub-prime lending market, meaning the borrower has less than perfect credit history, typically a FICO score below 620. The sub-prime market has its own lenders that specialize in financing mobile homes on land and within rented parks — requirements vary by lender. These sub prime lenders offer mobile home loans with high interest rates, higher down payments, additional fees and typically shorter terms than conventional or government loans. (10 years V. 30 years)

Private lenders: Anyone that has extra money, a bloated IRA or specializes in privately lending money, may offer a loan on just about any home, if the terms are in the private lenders favor. A great way to find private lenders is to attend a local real estate club meeting and ask others. Private lenders have to conform to certain government lending requirements to avoid fraud, but can decide which homes they choose to invest in based on any requirements they choose at any particular time. If you currently own a piece of land (free & clear) that is ready for a mobile home, many private lenders will lend money if the attached land is placed as collateral. However owning the land outright is not usually a requirement.

I personally made a private loan to a friend of mine; in exchange I recorded a note and mortgage against the property so I was protected. I held possession of the Title to the mobile home until the time he planned to pay me off. The old adage is correct, never do business with friends. My friend of many years ended up not being able to pay. I took possession of the home without foreclosing but I lost a good friend in exchange.

Seller Financing: Seller financing really is not a type of lending, however it is an extremely important tool for any serious real estate investor. Why is seller held financing not a type of lending? Seller financing IS NOT the seller lending you money, no money ever changes hands. Instead, it is simply the terms of the sale. The seller is accepting payments for the purchase price of his/her home.

I am happy to say that I have never personally utilized traditional financing to purchase any mobile home. I always structure financing with the owner of the mobile home I am interested in purchasing. Seller financing is easy to structure; there are no credit check and typically I make no down payment. When working with a motivated seller you structure the terms of the financing, not the other way around like traditional financing.

Note: The reason for the statement earlier, “It is risky for Government, conventional, sub-prime and private lenders to lend money to mobile home inside rented parks” is for the fact that the land is not owned by the borrower. Let role play. Let us say you are a lender, and you lend money to a borrower who purchases a mobile home inside a rented park. The borrower loses his or her job and cannot make the monthly payments to both you and the park. It is bad enough that now you are not getting paid on your Note, but now you have to pay the park’s lot/pad rent or risk having your home evicted. If the borrower continues to not pay you must foreclose, continue to pay the lot rent every month and attract a new buyer which is already park approved. Banks and lending companies make money by lending their money and collecting an interest rate. They are not in the real estate business. Most conventional lenders never want to worry about the burden of filling an empty home inside a park.

– J. Fed

Photo: scaredy_kat

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.