If you want to live in a home of your own, one of the most affordable ways to do it is to buy a modular or manufactured home. These homes are less expensive than a site-built home, and some of them have the advantage of being able to be moved from site to site at a reasonable cost. However, you will usually need to pay a higher interest rate on these properties because they are considered to be a higher risk loan for the mortgage lender in reference to modular or mobile home refinancing. When speaking with most local banks, you will find that refinancing manufactured homes is not as easy as traditional single-family homes that are fixed to a permanent foundation.
Fortunately, you can make a big difference in your monthly payments by doing a mortgage refinance on a modular or manufactured home. Many owners of these types of homes will often do personal property loans or chattel loans when they first buy them. This will have a much higher interest rate. Some manufactured home owners can often refinance their chattel loan into a regular mortgage, which will reduce their monthly costs. In some instances, the rates for mobile home refinancing can be slighter higher than the rates offered on manufactured or modular housing.
How to Qualify
For your modular or manufactured home to qualify for a mortgage loan, it is important to qualify with the following:
- The home has to be situated on a permanent foundation that meets all standards of HUD.
- The home has to have a title as real estate and not as your personal property.
- The owner of the home has to own the land that the home sits on.
How Big a Difference in Interest Rates?
In 2012, almost 70% of all manufactured and mobile home purchases were thought to be higher priced loans. Many of these were actually chattel loans, according to the CFPB. Interest rates on these types of personal loans are from 7-12%, so this is a very expensive way to own a home. Most of the loans are for 10 to 20 years. On the other hand, most 30 year mortgage loans as of 2016 can be had for less than 4% interest. Most chattel loans have interest rates that are entirely risk based and are based only on the credit of the borrower. That is why they are much higher an interest rate. Chattel loans are still the ones that are usually used for many of these homes because most mobile homes are not set on a permanent foundation. To refinance a manufactured home you need to meet the requirements outlined by lenders and banks. In most cases mobile home refinancing is available at a competitive interest rate.
How to Convert to Another Title
Some states are making it easier today to convert personal property titles into real estate titles. This will make it easier to get a refinance done. Not every state has this type of legislation, so you may need to check the regulations in your area.
How to Get a Real Estate Title
Many real estate attorneys or title companies can help you to convert a title when you want to refinance. As the owner of a modular or manufactured home, you will need to have the following items:
- Title to the home or the copy of the certificate of origin for the home
- Deed to land where the home with a personal foundation is situated
When you as the owner of the home has the real estate title, you will next need to find lenders that offer mortgages on a modular home or a manufactured home. Then, getting a loan is pretty much the same as getting a mortgage on a typical residential property.
What If You Are Borrowing on Leased Land?
Under limited circumstances, the owner of a manufactured home that is leasing a lot may be able to get a mortgage, even if they do not actually own the land. One option for refinancing your mortgage is through the FHA; this is called the Title I program. It is made for property owners who have mobile homes on permanent foundations but exist inside of a manufactured housing community. If you want a Title I mortgage, you need to meet the following qualifications:
- The mobile home needs to be your primary residence.
- The home also has to be on a rental site in a home park that completely conforms to all FHA guidelines.
- The lease agreement has to abide by all FHA credit requirements.
You should know that it is difficult to find a mobile home park that meets these tough FHA guidelines. The Title I program is a lot of paperwork hassle, so not many landlords participate.
What Does Switching Title Cost?
When you have your mobile home titled as a personal property, you will pay personal property taxes. But when you have it titled as real estate, you then need to pay real estate taxes. For many states, property taxes will be more costly. You should do the calculations to determine how much you are going to be able to save by having a lower interest rate, compared with the taxes that they might pay and what your closing costs will be.
There are some options to do a refinance on a manufactured home or modular home if you currently have a chattel home loan. You may need to do some shopping around to find a lender who will work with you. Also, we recommend that you get your credit score up as high as you can; a manufactured or modular home is a higher risk investment for the mortgage lender. If you can show that you have a solid credit score of 680 or so, you may be able to find more potential borrowers.
Highlights for Refinancing Modular and Manufactured Homes
Many people who own a mobile home or modular home find that it one of the most affordable ways to own your own home. One thing that can make a big difference on your payment each month is whether you choose to refinance the mobile or modular home with a personal loan or a mortgage loan.
Many homeowners of these types of properties are unable to get a mortgage loan, so they get a personal property or chattel loan. They carry interest rates that are much higher than mortgages. If you have a chattel loan, being able to refinance it into a mortgage loan can make a big difference in your payments every month.
How to Refinance Your Mobile or Manufactured Home
To qualify for a manufactured or mobile home refinance on your property, it must meet these standards:
- The home has to be set on a permanent foundation that meets HUD standards (the Department of Housing and Urban Development).
- The home must be titled as real estate and not as personal property.
- You must own the land that your home is one.
Interest Rates on Manufactured Home Loans
In 2012, almost 70% of manufactured housing loans were higher priced mortgages, and a lot of them were chattel loans. These loans in 2012 had interest rates of 7-13%, and were from 15-20 years in length.
As of late 2016, a conventional mortgage loan for a borrower with 700 credit is in the 4% range.
The interest rates on chattel loans are always risk based and they will always carry higher interest for those with poor or no credit. Chattel loans are the only option for owners of mobile and manufactured homes that are not on permanent foundations.
How to Convert to New Title
Some states are making it easier to convert your personal property title to a real estate title. There have been changes to the rules in this area in LA, MD, MO, NE, ND, TN, and VA. The new legislation in these states had made it clearer about what home is actually real estate and what is not. This is making it easier to get titles converted.
A good real estate attorney or title company and attorney should be able to assist you with getting your title converted. That is the first step to getting your loan refinanced into a lower rate.
To accomplish this, you must provide:
- Certificate of title to the house or a copy of the certificate of origin of the home
- Deed to the land where the home with a permanent foundation is situated
When you have the real estate title in your hand, you then will need to find a mortgage lender that will give you a loan on a manufactured or mobile home. Once you do, the process to do the loan is just like with a regular house.
Under limited circumstances, manufactured home owners can get a mortgage on a house with a leased lot. The FHA now offers the Title I program. It is made for owners who have homes on a permanent foundation but the home is located in a manufactured housing community.
To qualify under this program:
- The mobile home has to be your primary residence
- The home must be on a rental property site that means all FHA standards
- The lease agreement must be to standards set by the FHA
You should know that it is difficult to find mobile home parks that meet FHA standards. There are few landlords that will deal with the Title I program. And few lenders deal in Title 1 mortgages, but more are becoming involved year by year.
How Much Does it Cost to Switch Title?
If the mobile or manufactured home is titled as your personal property, you have to pay personal property taxes. When it is titled as real estate property, you will pay real estate taxes. In most states, it is more expensive to pay personal property taxes.
You will need to do the math in your state to see how much you would save with a lower interest rate with a mortgage loan. You then need to compare how much more of a tax bill you might have by paying real estate taxes, or it could be less. Also, you need to figure in closing costs, which can be 3-4% of the loan amount.
Also, if you must have a permanent foundation to refinance your chattel loan, this could cost you as much as $15,000.
The Bottom Line
Refinancing a mobile home or manufactured home into a real estate mortgage is a good move for most people. You will usually be able to save considerably on both your monthly payment and your long term interest costs.
However, we recommend that you run the numbers carefully to see if you will save substantially or not. Also, to qualify for good mortgage rates, you will need to have credit of at least 680, and the higher the better.
Hopefully, you will be able to get into a real estate loan in 2017 and save big on your payments.