Family standing by mobile home porch and skirting
August 26, 2021

What is a Chattel Loan? The Easiest Way to Finance a Mobile Home!

When you begin on the path of mobile home ownership, you may find your mind spiraling with internal questions, like:

  • Where do I start?
  • How will I know if I’m making the right decisions?
  • What’s the easiest way to finance a mobile home?
  • I know I will need a loan, but what is this Chattel Loan I keep hearing about?
  • What does it mean to buy a mobile home with a chattel loan?
  • How are chattel loans different from the other loans available?
  • Is there a list of the pros and cons that I should reference before deciding on a chattel loan?

Take a breath…

Like you, we’ve been there too!

Maybe not in your exact pair of shoes, but we understand the pending questions leading in to making a huge financial decision like buying a home may seem endless – not to mention overwhelming!

Let us ease your mind a bit by answering those questions upfront, and maybe that will help take some weight off your shoulders. We want the home buying journey to be one to remember, something positive and monumental to look back on and share with your family.

So, let’s take the first step, and learn about the popular mobile home loan option called chattel.

What is a Chattel Loan?

First, let’s start with the elephant in the room…

Chattel is pronounced like the word cattle, just with a hard CH sound.

Now, what is this type of loan, and why isn’t it offered when buying a site-built home?

Well, this type of loan is actually explained in the name itself! The word “chattel” means a piece of movable property such as machinery, a vehicle, or, you guessed it, a mobile home!

So, a chattel loan is a loan for movable property. Easy enough, right?

More often than not, this type of loan is the first option our team tries to pursue with potential home buyers. But why is that, you may be wondering?

Well, there are a couple of reasons that we would like to share, so – let’s dive in!

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Pro: Chattel Loan Timeline

Many of the families that we are so lucky to help get into a home need to move sooner than later.

Are you in a hurry to move?

Maybe you need a home before the end date of your rental lease, or are you itching to get out of your parent’s home?

Well, you’re in luck – and here’s why!

Chattel loans have a much quicker processing time than other home loan options. Because a chattel loans only go towards financing the home and not both the home and property, the loan, and all its requirements, can be completed much sooner!

That means that there is no need for the typical 2-3 week delay on appraisal and foundation construction.

Doesn’t that sound great?

Choosing a chattel loan will often allow buyers to complete financing and have their new home delivered in as soon as 30 days. This is pretty significant because the timeline for a land and home package can take up to 3 months!

Wow, talk about a time saver!

With a chattel loan, you are in the driver’s seat.

By that we mean, you have control of the loan process because you send loan documents at your own pace. With other loan options, the bank, title company, construction companies, and appraisers take the lead in coordinating and scheduling the completion of the loan.

Con: Interest Rates

However, a chattel loan will tend to have higher interest rates than a mortgage including a government backed loan such as an FHA or VA loan.

We want to fill you in on everything, not just the awesome parts of this process. Let’s explain this point a bit further…

It’s set up this way because in the event of a foreclosure, the bank will not own the property the home sits on, only the home itself. Without an included property, banks feel there is a greater risk they will not get their money back in the event of a foreclosure.

In order for banks to cover their risk, a chattel loan will have interest rates between 5.99% and 12.99%, depending on income, credit score, and other variables.

Pro: In the Event of Foreclosure

Okay, that was rough, but it had to be said.

Along the same topic, but on the lighter side of things, there are benefits to the owner if the unfortunate event of a foreclosure were to happen.

What could possibly be positive about that, you may be wondering?

Well, a chattel loan only covers the mobile home itself, and not the land that it sits on.

If you own the land that your mobile home is placed on, in the event of a foreclosure, you wouldn’t lose both assets since the bank does not own your land. Owning the property would allow you to use your land as an asset to aid in the recovery of your home loss.

So even though this is a tricky subject to discuss, at the very least, you know you still have options at the end of the day with the land being excluded from the loan.

“But wait! What if I don’t own the land, and I live on family property or in a mobile home community?”

The answer is pretty simple, actually!

The chattel loan would be your only option. Reason behind that is, you cannot get a conventional mortgage if you don’t own the land that your home is sitting on.

Neutral: Down Payment on a Chattel Loan

At this point you may be thinking, “okay, how much am I putting down upfront, and how is that number determined?”

Great question!

The factors in determining down payment are actually pretty similar to those that determine the interest rate for your loan. For chattel, it typically falls between 5% and 10%, as opposed to a government FHA/VA, which falls between 0% and 5%. Yep zero, that’s because VA loans can mean a 0% down payment for Veterans.

But before you panic at the difference in percentage, we want to point out that the higher down payment percentage is not always a bad thing.

More money doesn’t sound like a good thing, but hear us out…

Let’s break this down into an example.

Say, if 10% on a $60,000 loan is compared to 5% on a $120,000 loan, a home buyer needs to put down $6,000 in both instances.

While the upfront cost certainly isn’t the only aspect to consider, it is important to note that though government loans can have lower interest rates and down payments, the total amount borrowed is higher and therefore the monthly costs tend to equal out.

We also thought you’d be interested to know that the setup/install costs are higher for an FHA/VA or other government qualified loan verses a chattel loan. Government loans require a different kind of foundation than what is required for chattel loans.

So again, something positive to take away from this choice in loan options. The numbers may appear intimidating at first, but like we explained in our example above, the costs and percentages that make up the chattel loan tend to equal out in comparison to a government loan.

Your Loan Depends on Your Circumstances

Although chattel is not the only loan option available to finance a mobile home, it is considered to be the least painful and most timely option for you to get into your new home.

Of course, there are certain situations where someone may prefer a government loan, especially where land has not been obtained and many improvements need to be completed. And in this case, a government loan would significantly lift upfront financial burden from a home buyer and make the path to becoming a homeowner much more achievable.

It just might take a bit more time and require a few more hoops to jump through on the way.

In the end, each customer is an individual with specific needs and circumstances. Luckily, there is a loan option for nearly everyone, and we’re happy to help you choose one that best fits you and your family’s needs!

So that’s it: What is a Chattel Loan? The Easiest Way to Finance a Mobile Home! This blog has been revised to keep information and images previously shared, current. Follow the links in this page to read more information on each topic. We would love to chat with you or hear about your experience on our Facebook page or through our Contact Form.

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