Manufactured homes are single family homes that are constructed entirely in a factory controlled environment in accordance with the safety standards imposed by the US Department of Housing and Urban Development (HUD). The HUD Code, which regulates the design of the home, the quality and the strength of construction, the ease of its transportation, resistance to fire, heating, plumbing, air conditioning, electrical wiring, and efficient use of energy in the manufactured home, came into effect on 15th June, 1976. Manufactured homes that were constructed prior to 15th June, 1976, are known as mobile homes.
What is a Manufactured Home Loan?
The terms ‘mobile home’ and ‘manufactured home’ are often used interchangeably. However, if it has been constructed prior to 1976, the chances of being able to obtain a loan for the purpose of buying or remodeling it are bleak. This is because most lenders expect it to be constructed in accordance with the HUD code.
Considerations for the Loan
Financing a mobile home, that was built after 1976 in compliance with the HUD code, involves the following issues.
Purpose: The loan must be sought for the purpose of buying a manufactured home with or without the lot, or for buying only the lot on which the structure would be installed. It should be the principal residence of the borrower. In case the borrower is availing a loan for purchasing the lot, the home needs to be installed on the lot within a period of 6 months. If it is for the purpose of buying only the manufactured house, which will then be placed in Mobile Home Park, the lease should extend for at least 5 years beyond the term of the loan.
Credit Score, Down Payment, and Debt to Income Ratio: A credit score over 620 is desirable. A credit score of less than 600 will force the borrower to seek a bad credit loan. A down payment equal to 5 to 10 percent of the purchase price is generally required. The debt to income ratio should not be more than 31 percent. The loan is given for a term of 15 to 30 years depending upon the credit profile, size of the home, and type of home loan.
Type of Loan: In case it is meant for the purpose of buying a home that would be placed in a rented lot, the borrower should opt for a personal property loan. A mortgage loan, for buying both the land and home, or either the land or the home, can be availed if the home has a permanent foundation. A mortgage loan carries a lower rate of interest as compared to a personal property loan, that is usually provided by the retailer who sells the house.
Lenders: FHA offers insurance on approved Title 1 and Title 2 loans. Title 1 loan is used to purchase or refinance a home, purchase a lot on which to place the structure, or purchase a home and the lot in combination. Title 2 loan is a mortgage loan. VA guaranteed loans are available for eligible veterans. FHA insured loans and VA guaranteed loans are meant for people with fairly decent credit scores. Freddie Mac and Fannie Mae also buy these mortgages provided the loan conforms to their guidelines. Hence, for availing loans guaranteed or owned by these lenders, the borrower needs to have a fairly good credit score. This brings us to the question of bad credit manufactured home loans.
How to Avail these Loans with Bad Credit?
For availing bad credit manufactured home or mobile home loans, the borrower has to pay a high rate of interest. Even then, lenders may be unwilling to provide it. For the purpose of obtaining an equity loan in order to make improvements on the house, a credit score of less than 600 may result in the applicant having to pay 35 to 40 percent of the market price of the home as down payment. Hard money lenders may be willing to provide it at a very high rates of interest.
An aspiring home owner should work towards building a good credit score, since it is a prerequisite for a number of loans that a person may require in future.