A Guide to FHA Manufactured Home Loans
/Buying a home is a milestone, and opting for a manufactured home can be a cost-effective way to achieve this goal. If you're considering this route, the Federal Housing Administration (FHA) manufactured home loan program could be your path to homeownership. Exploring the requirements for this program will help equip you to take the step.
What Is an FHA Manufactured Home Loan?
The FHA offers mortgage programs that are designed for refinancing or purchasing manufactured homes. Manufactured homes, also known as mobile homes or prefabricated homes, are factory-built structures that are constructed off-site and then transported to the intended location.
What Are the Types of FHA Home Loans?
There are two types of FHA loans for manufactured homes.
Title I FHA Loans
Title I FHA loans are provided by FHA-approved lenders and are insured by the Federal Housing Administration. These loans are primarily intended to assist homeowners in making necessary home improvements or repairs.
The terms of these loans can span up to 20 years for a single-family or multifamily structure, 15 years for a manufactured home that is established on a foundation, and 12 years for a manufactured home lacking a foundation.
The FHA charges an annual mortgage insurance premium of $1 per $100 of the loan amount. This premium can be built into your interest rate.
The maximum loan amounts vary based on the type of property. For a single-family home, it can reach up to $25,000; for a multifamily structure, it's $12,000 per unit (up to a total of $60,000); for a manufactured home on a foundation, it's $25,090; and for a manufactured home without a foundation, it's $7,500.
These loans are contingent on certain conditions, such as the house having been built and occupied for at least 90 days, and the loan proceeds must be verified as used for specifically intended property improvements.
Title II FHA Loans
Title II FHA loans are insured by the Federal Housing Administration and are designed for purchasing manufactured homes that are permanently affixed to a piece of land. Unlike Title I loans, Title II loans cannot be used for mobile homes.
The manufactured home must meet several requirements. It should be 8 feet or more in width and 40 feet or more in length, with a minimum floor area of 400 square feet. The home has to have been constructed after June 15, 1976. In addition, the home's foundation must comply with the Permanent Foundations Guide for Manufactured Homes, and any additions to the home must meet HUD's load standards for the foundation.
Title II loans typically attract a larger pool of lenders, offering borrowers the advantage of shopping for better loan terms. They also provide more flexible terms than Title I loans. Loan limits under this program can vary depending on your location, and you can find the limit for your area using the HUD search tool.
One key feature of Title II loans is the FHA-backed mortgage insurance, which reduces the lender's risk, allowing for a down payment as low as 3.5%. Moreover, with this program, the cost of home repairs can be absorbed into the mortgage, promoting urban renewal and home renovation. For borrowers expecting an income increase, graduated payment loans may also be available, starting with a minimal monthly payment and gradually increasing each year.
What Are the FHA Loan for Manufactured Home Requirements?
Not everyone can apply for manufactured home loans. Here are the key requirements you need to meet:
Down Payment: You must have sufficient funds for the required down payment.
Income Proof: You have to provide proof of adequate income that will cover the loan payments and your other expenses.
Principal Residence: The manufactured home must be your primary residence.
Additionally, the manufactured home has to meet the Model Manufactured Home Installation Standards and all applicable state and local regulations for the installation and construction of the manufactured home foundation system.
The home must have suitable water supply and sewage disposal facilities available. New units need to carry a one-year manufacturer's warranty.
What Are the Pros of FHA Loans for Manufactured Homes?
FHA manufactured home loans can provide several advantages to potential homeowners.
Lower Down Payments
FHA loans typically require lower down payments compared to traditional mortgages. This makes homeownership more accessible for people who may struggle to save a large amount of money for a down payment.
Accessible Credit Requirements
FHA loans are designed to be available to a wide range of borrowers, including those with less-than-perfect credit. While traditional mortgages often require high credit scores, FHA loans typically have more lenient credit requirements.
Competitive Interest Rates
The interest rates on FHA loans are usually competitive, and they're required to be fixed for the entire term of the loan. This means your mortgage payments will remain constant over the life of the loan, making budgeting easier.
Flexible Use
An FHA loan can provide options for purchasing or refinancing a manufactured home, a developed lot on which to place a manufactured home, or a manufactured home and lot in combination. This flexibility can be helpful for borrowers with various homeownership needs.
Homeowner Protection
The FHA requires certain protections for homeowners. For instance, if the home is placed on a leased lot, the lessor must provide the homeowner with a lease term of at least 3 years and give an advance written notice of at least 180 days if the lease is to be terminated. This can provide additional security for homeowners.
Long Loan Terms
FHA loans offer generous loan terms, which can make monthly payments more affordable. For example, a loan for a manufactured home or a single-section manufactured home and lot can have a term of up to 20 years and 32 days.
Consumer Protections
The FHA provides consumer protection in two significant ways. First, the borrower must sign a HUD Placement Certificate. This document affirms that the retailer has installed the home to the borrower's satisfaction before the lender can disburse the loan proceeds.
Second, if the borrower encounters any construction problems once they move into the home, they can reach out to HUD for assistance at (800) 927-2891.
Equal Housing Opportunity
The FHA adheres to the Fair Housing Act, which prohibits discrimination in housing and related transactions. This ensures that all eligible borrowers have an equal opportunity to access these loans, regardless of race, color, religion, sex, national origin, familial status, or disability.
What Are the Cons of FHA Manufactured Home Loans?
While a Federal Housing Administration loan offers several benefits, there are potential downsides to consider.
Loan Limits
FHA loans come with maximum loan amounts, which can restrict how much you can borrow. Depending on the cost of the manufactured home you are interested in, the limit might not be sufficient to cover your needs.
Mandatory Mortgage Insurance
Borrowers with FHA loans are required to pay for mortgage insurance, which adds to the cost of the loan. This insurance protects the lender in case the borrower defaults, but it represents an extra expense for the borrower.
Location and Site Requirements
FHA loans require the home to be on a suitable site, and if it's on a rental site, the park and lease agreement must meet FHA guidelines. These requirements might limit your choices for where your home can be located.
Property Eligibility Requirements
The manufactured home must meet the Model Manufactured Home Installation Standards and all applicable state and local requirements.
Occupancy Requirement
FHA loans require the borrower to occupy the manufactured home as their primary residence. This can be limiting if you were considering renting the property or using it as a secondary home.
Limited Financing Scope
The proceeds of a Title I manufactured home loan may not be used to finance furniture or movable properties. Unless you have other sources of funding, this could limit your capacity to fully furnish the home immediately after purchase.
Longer Closing Process
Given the government involvement and the additional paperwork required, the process of obtaining an FHA loan can be longer than with a conventional loan. This might not be ideal for buyers in a hurry to close.
Are FHA Manufactured Home Loans Right for You?
Federal Housing Administration loans for manufactured homes can be a good choice for affordable homeownership since they require lower down payments, have accessible credit requirements, and offer flexible terms with consumer protections. However, all loans come with limitations, and some options are better for low-income families. Check out our Low-Income Homebuyer’s Guide to see if there is a better mortgage program for you.
