How To Finance A Mobile Home: Chattel Mortgage Vs Traditional Mortgage
Generally, manufactured or mobile homes account for six percent of all occupied housing in the US but a much smaller percentage of home loan origination according to the latest report issued by the CFPB (Consumer Financial Protection Bureau). Just like any other property, before you take out a loan on a mobile or manufactured home, it is very important that you know the options you have and make a point of knowing the options you have and then apply for the most favorable type of financing. As a rule of thumb, you should never accept a loan before you research your choices, this is especially so if you are putting the home on a piece of land that you own.
How To Finance A Mobile Home - Types Available
Put simply, there are only two types of mobile home financing: a chattel mortgage and a traditional mortgage. To appreciate this, it is first important to understand the uniqueness of a mobile home. If you have a mobile home that’s not permanently affixed to the land on which it is standing- and the homeowner only leases the land on which the home is located- the entire unit is legally considered personal property and not real estate.
To qualify for a traditional mortgage, the mobile home must be considered real estate, it must be affixed to the land and you must also own the land as well. If the structure is considered real estate then all the protections that come with traditional mortgages apply. This implies that the homeowner can apply for and get an FHA-insured traditional mortgage or opt for a loan that’s backed by Fannie Mae which does also back loans on manufactured homes.
Such a loan will be adequately covered by the requisite consumer laws which apply to all traditional mortgages. This though does also include various repossession and foreclosure state laws that may otherwise not apply to property laws. To get more information on approved FHA lenders for mobile (Manufactured) homes, you should visit the U.S. Department of Housing and Urban Developmentwebsite. Depending on the lender that you get, chances are that the loans will be available at very favorable rates.
The other financing option is to go for a chattel mortgage. A chattel loan does allow the lender or financing institution to hold a lien against the movable property which in this case is your mobile home until such a time when the loan is satisfied. The differences between a chattel and a traditional mortgage loan are quite wide and vast.
One of the most notable differences is that chattel loans are always priced much higher than what you would otherwise get from a traditional mortgage. As a matter of fact, though the rates tend to vary from time to time, it is very difficult to get a chattel loan at less than 6.99%. This is bound to go higher if your credit is not excellent.
Another disadvantage of chattel loans over traditional loans is that they are generally for shorter periods of time; this does mean that you premiums tend to be much higher. The main reason why this is the case is because most your 'mobile home’ due to its movable nature is viewed as depreciating in value very fast. Even though there are lenders who can give you a chattel loan extending 23 years or thereabouts, they are not so many and as earlier noted, their conditions may not be favorable.
On the brighter side though, chattel loans often have lower closing costs and the time taken to close the loan is much shorter when compared against traditional mortgage closing costs and time taken to close the mortgage.
In conclusion, before you decide on how to finance a mobile home, you are well advised to do a thorough cost benefit analysis and find out where your interests are best served. Even though a vast majority of mobile home owners tend to prefer going for chattel loans, the truth is that the costs are quite prohibitive than if you would opt for a traditional mortgage. It is insightful to note though that at times the main reason behind buying a mobile home may be the desire to be mobile and have the freedom to move from one spot to the other and thus the urge to have the home listed as personal property.
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