A person accepting a loan agreement
September 7, 2023

How to Finance a Mobile Home

Everything You Need to Know About Getting a Mobile Home Loan

Mobile homes are a popular option for affordable housing, but they can be more expensive to finance than traditional homes. In this article, we will discuss how to finance a mobile home, the different types of mobile home financing available, and the pros and cons of each type. We will also provide tips on how to get approved for a mobile home loan.

What is Mobile Home Financing?

Mobile home financing is a type of loan that can be used to purchase a mobile home, and is distinct from regular mortgages since mobile homes are classified as personal property rather than real property. This means mobile home loans may have higher interest rates and costs and are less readily available than conventional mortgages.

Types of Mobile Home Financing

  • Federal Housing Administration (FHA): Because the Federal Housing Administration insures FHA loans, applicants with less-than-perfect credit may find them more appealing. First-time homeowners may find FHA loans more inexpensive because they can choose from down payments as low as 3.5%.
  • Veterans Affairs (VA) loans: Eligible veterans and their spouses may apply for VA loans. In addition to not requiring a down payment, these loans also provide other advantages, including no private mortgage insurance (PMI).
  • Conventional loans: Despite not being government-insured, conventional loans are still a popular choice for financing mobile homes. Although some lenders provide smaller down payments, conventional loans normally require a down payment of at least 20%.
  • Land contracts: Making regular payments to the seller under a land contract will result in you eventually owning the mobile home outright. Land contracts can be an excellent choice for borrowers with poor credit, but they can also be risky.

Pros and Cons

Buccaneer Double Wide Mobile Home Avalyn Exterior View 02

Before deciding which type of mobile home loan you want, it’s important to consider each method’s pros and cons. Depending on your situation, some factors may matter more than others.

FHA loans

Pros:

  • Lower down payment requirements
  • More lenient credit score requirements
  • Government-backed loans

Cons:

  • Higher mortgage insurance premiums (MIP)
  • Can be more difficult to get approved

VA loans 

Pros:

  • No down payment required
  • No private mortgage insurance (PMI)
  • Government-backed loans

Cons:

  • Eligible borrowers are limited to veterans and their spouses
  • Can be more difficult to get approved

Conventional loans 

Pros:

  • More flexible terms
  • Lower interest rates than FHA or VA loans

Cons:

  • Higher down payment requirements
  • More difficult to get approved for borrowers with less-than-perfect credit

Land contracts 

Pros:

  • No down payment required
  • More flexible terms than traditional loans

Cons:

  • Can be difficult to get out of the contract
  • Can be more expensive than traditional loans

Factors Lenders Will Consider for Mobile Home Financing

  • Credit score: Your credit score is one of the most important factors that lenders will consider when you apply for a mobile home loan. A good credit score will make you a more reliable borrower and likely result in a lower interest rate.
  • Down payment: The amount of money you put down as a down payment will also affect the interest rate you are offered. A larger down payment will lower your monthly payments and the amount of interest you will pay over the life of the loan.
  • Income: Lenders will want to see that you have enough income to afford the monthly payments on the loan. They will look at your current income, as well as your job stability and history.
  • Debt-to-income ratio: Your debt-to-income ratio is the amount of debt you have compared to your income. Lenders will want to see that your debt-to-income ratio is low, meaning you have enough money left over after paying your debts to afford the monthly payments on the loan.
  • Loan term: The length of the loan term will also affect the interest rate. A longer loan term will lower your monthly payments, but it will also mean that you will pay more interest over the life of the loan.

How to Get a Down Payment

  • Save up money: This is the most common way to build a down payment. Start by setting aside money each month, even if it is just a small amount. You can also look for ways to save money, such as cutting back on unnecessary expenses or finding ways to make extra money.
  • Get a gift from a family member or friend: If you are lucky enough to have someone willing to give you a gift for your down payment, this can be a great way to get started.
  • Use a down payment assistance program: Several government and non-profit programs can help you with your down payment. These programs may offer grants, loans, or other forms of assistance.
  • Get a loan with a lower down payment requirement: Some lenders offer loans with lower down payment requirements, such as FHA loans and VA loans. These loans may have higher interest rates, so be sure to compare your options before you choose a loan.

The Loan Process

  1. Shop around for lenders: When buying a mobile home, you’ll want to shop around for lenders. It is important to compare interest rates, fees, and terms. You can get quotes from lenders online or by visiting their websites. Be sure to ask about any hidden fees or charges.
  2. Gather your financial documents: The lender will need to see your financial documents to assess your creditworthiness. This includes your credit report, tax returns, pay stubs, and bank statements. You can get your credit report from AnnualCreditReport.com.
  3. Complete the loan application: The loan application will ask for information about your income, assets, debts, and credit history. Be sure to answer all of the questions honestly and completely.
  4. Meet with the lender: The lender will review your application and ask you questions about your financial situation. This is a good opportunity to ask the lender any questions you have.
  5. Undergo a credit check: The lender will run a credit check to assess your creditworthiness. This will impact the interest rate you are offered.
  6. Get approved for the loan: If you are approved, the lender will send you a loan agreement. This is a legally binding document that outlines the terms of the loan. Be sure to read the agreement carefully before you sign it.
  7. Close on the loan: This is when you will sign the loan documents and pay the closing costs. Closing costs can be several thousand dollars, so factor them into your budget.

What to Expect During the Approval Process

  • The lender will review your financial documents: This will include things like your credit report, tax returns, pay stubs, and bank statements. The lender will use this information to assess your creditworthiness and ability to repay the loan.
  • The lender will run a credit check: The lender will run a credit check to see your credit score and any negative items on your report. Your credit score is one of the most important factors that lenders will consider when approving you for a loan.
  • The lender may require a property appraisal: The lender may require a property appraisal to determine the value of the mobile home you are buying. The appraisal will help the lender determine how much they will lend you. If you’re buying a mobile home with land, the location may factor into the valuation.
  • The lender may require a home inspection: The lender may require a home inspection to make sure that the mobile home is in good condition. The home inspection will help the lender determine if any major repairs need to be made.
  • The lender will decide: Once the lender has reviewed all of your paperwork and completed the necessary due diligence, they will decide whether to approve your loan.

Tips on How to Finance a Mobile Home

  • Get quotes from at least three lenders: This will give you a good idea of the interest rates and terms available.
  • Ask about hidden fees or charges: Some lenders may charge hidden fees, such as origination fees or prepayment penalties. Be sure to ask about these fees before you choose a lender.
  • Compare the total cost of the loan: The interest rate and closing costs should be considered when comparing loans.
  • Get pre-approved for a loan: This will give you an idea of how much you can borrow and your interest rate. This can be helpful when negotiating with sellers.
  • Gather your financial documents early: The sooner you gather your financial documents, the sooner the lender can start reviewing your application.
  • Make sure your credit report is accurate: If there are any errors on your credit report, be sure to dispute them early in the process.
  • Be prepared to answer questions about your finances: The lender will ask you questions about your income, assets, debts, and credit history. Be prepared to answer these questions honestly and completely.
  • Be patient: The approval process can take weeks or months. Be patient and don’t give up.

Final Thoughts

By understanding the different types of mobile home financing available, you can make an informed decision about the best option for your needs. With careful planning and preparation, you can get approved for a mobile home loan and finance your dream home!