The housing market has been a hot topic of conversation for the past few years, as home prices soared, inventory shrank, and the average homebuyer was left wondering if things would ever even out.
As a result, buyers in some regions are opting for alternatives to traditional, “stick-built” homes. Modular, mobile, and manufactured homes enable homebuyers to purchase a home more quickly and at a lower cost than they typically could if they were solely looking at the site-built houses on the market.
There tend to be some misconceptions regarding what constitutes a modular versus mobile versus manufactured home and whether purchasing one is a good investment. Let’s take a closer look at each of these types of homes, the benefits of owning one, and how financing is different from purchasing a traditionally constructed home.
Many people use the terms “mobile,” “manufactured,” and “modular” interchangeably when referring to homes that are constructed in a factory rather than on a homesite. However, there are significant differences between these types of homes.
The term “mobile home” may refer to an actual house on wheels or a home that was factory-built before the U.S. Department of Housing and Urban Development (HUD) code standards were established in 1976.
Manufactured homes are factory-built homes that were manufactured after the 1976 HUD standards were implemented. These are the structures most people are talking about when they say “mobile home.”Manufactured homes are assembled in a factory and then transported and permanently affixed on a lot. Technically, manufactured homes can be moved from one place to another because they are built on a metal chassis, but it is cost-prohibitive. These homes are also built in compliance with the HUD’s Manufactured Home Construction and Safety Standards.
Modular homes tend to be bigger than standard manufactured homes and are considered by some to be more durable than manufactured homes.
Modular homes are also manufactured in a factory, but the pieces, or modules, are shipped to the homesite for finishing touches. These homes are built to International Code Council standards and must conform to the same state and local regulations as site-built homes.
In addition to being easier to purchase than many traditional homes in a tough real estate market, manufactured and modular homes offer homebuyers other valuable benefits:
There are several ways to purchase a manufactured or modular home:
If the home is not permanently affixed or is located on leased property at the time of sale, you will also need to purchase or lease land and transport the home to its new location.
The rules for financing a manufactured or modular home are somewhat different from those governing the purchase of a traditional home. Here are a few of the mortgage options available to homebuyers:
Fannie Mae and Freddie Mac both offer financing for manufactured homes, but the purchase must meet specific criteria, including minimum square footage and down payment and credit score requirements.
Fannie Mae treats modular houses like stick-built housing, not manufactured housing, so there are no additional criteria that must be met to qualify for a mortgage.
FHA loans for manufactured or modular homes can be obtained through a traditional lender, but the loan is insured by the Federal Housing Administration (FHA).
Depending on the type of property you are purchasing, you will need to obtain either a Title I loan (home purchase only) or a Title II loan (purchase home and the land it is affixed to).
VA loans are backed by the Department of Veterans Affairs (VA). This type of mortgage is a great option for qualified buyers because there is no down payment and the minimum credit score requirements are determined by the lender.
The US Department of Agriculture (USDA) will also back mortgages for manufactured and modular homes in rural areas as long as the house meets specific criteria. USDA loans also do not require a down payment and the lender will set the minimum acceptable credit score.
Chattel loans are not traditional home loans, as they can also be used to purchase other types of movable personal property, such as cars, boats, and construction equipment, in addition to manufactured or modular homes.
Chattel loans have higher interest rates and shorter term lengths than other types of loans, but they are a good option for buying a home that doesn’t qualify for a different type of mortgage because it is located on leased land.
If purchasing a manufactured or a modular home sounds like it might be the best choice for you, be sure to work with a lender who specializes in financing this type of housing so you fully understand the financial implications.
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