WHAT IS A MANUFACTURED HOME?
A manufactured home, formerly known as a mobile home, is a factory-built structure with a permanent chassis. This design allows it to be transported to a job site on its wheels or a flatbed trailer. Because of the efficiency of factory production, manufactured homes are often more economical than traditional homes built directly on-site (known as ‘stick-built’ homes). They must meet federal construction requirements, durability, transportability, fire resistance, energy efficiency, and quality (HUD Code).
It is crucial to distinguish between manufactured and modular homes. Modular homes, like manufactured homes, are factory-built, but unlike manufactured homes, they are assembled on-site and secured to permanent foundations. This distinction in classification has significant ramifications for financing, insurance, and zoning.
MANUFACTURED HOME LOANS
Financing a manufactured home differs significantly from financing a stick-built home. These disparities are primarily attributable to lenders’ perceptions of risk, influencing loan availability, interest rates, and down payment requirements. Personal property loans, mortgage loans, and FHA loans are all options for financing manufactured homes.
Personal property loans, often known as chattel loans, are commonly used to finance manufactured homes that are not permanently attached to the land. These loans typically have higher interest rates and shorter terms, reflecting the asset’s higher risk and depreciation.
On the other hand, mortgage loans for manufactured homes demand that the home be attached to a permanent foundation and designated as real property. These loans offer terms and interest rates more equivalent to regular mortgages. Among these, FHA loans are significant because of their reduced down payment requirements and more relaxed credit guidelines, making them an appealing option for many buyers.
CONSTRUCTION-TO-PERMANENT LOANS FOR MANUFACTURED HOMES
FHA One-Time Close (OTC) construction loans are specialized financial products under the construction loan category. These loans are unique in that they allow the borrower to finance the building and the permanent mortgage of their manufactured home with a single loan closing. This one-time close structure lowers the complexity and costs associated with several loan closings, making the homebuying process more efficient and affordable.
This form of financing is especially advantageous for buyers who want to buy a manufactured home but need to finance both the home’s construction and the land it will sit on. Because the FHA is involved in these loans, borrowers can benefit from lower down payments (as low as 3.5% of the total project cost) and more liberal lending criteria than traditional construction loans.
However, there are strict requirements for an FHA OTC loan. The borrower must have a contract with a licensed builder, the home must meet specific energy efficiency and structural standards, and the total cost of the land and construction must fall within the FHA loan limits for the location. Furthermore, the borrower must intend to live in the manufactured home as their principal residence.
The FHA OTC loan process consists of numerous steps: loan application, project approval, construction, and conversion to a permanent mortgage. The funds are disbursed in stages, corresponding to building milestones. This phased distribution protects the lender’s interests and ensures funds are available throughout construction.
The loan is converted to a permanent mortgage when the construction is finished. This conversion represents a substantial benefit of the FHA OTC loan, as it avoids the need for a second closing and other qualification processes, saving the applicant time and money.
FINANCING YOUR MANUFACTURED HOME PURCHASE
FHA One-Time Close construction loans provide a practical and efficient financing option for consumers buying a manufactured home. These loans streamline the financing process by combining the building and permanent mortgage phases into one transaction. FHA OTC construction loans for manufactured homes are an accessible path to homeownership for many potential homeowners, particularly those with lower credit scores or less available cash for down payments. As with any financial transaction, borrowers must thoroughly understand these loans’ terms, conditions, and requirements and consult a mortgage professional to ensure that this financing option is appropriate for their needs and circumstances.