Mobile Home Loan Options: What is Right for You?
Interested in buying a mobile home but aren’t exactly sure how the financial options align with your specific needs? You are in luck!
There are actually quite a few different loan options available for those looking to purchase a mobile home.
At first, the choice can seem unclear. We understand that going into any situation without a bit of insight can leave you feeling unsure, intimidated, or even overwhelmed.
That is one burden we want to take away! At Braustin, we strive to guide potential homeowners with education – first and foremost. We strongly believe the more you know, the more confident you will feel while making this huge financial decision.
It can be as simple as learning “the lingo” or diving deeper into each fundamental, but either way – we’ve got you covered with the Braustin Home Buying Academy.
In this article, we will tackle what each mobile home loan option entails, but keep in mind, your finances will most likely make the decision for you. Why is that? Well, in previous blogs we have discussed factors such as interest rates and credit scores, both of which affect loan selection.
Feel free to take a quick refresher course by clicking those links, but if you’re ready – let’s go ahead and dive right into what it means to buy Chattel, Land/Home, or the very mysterious Land-in-Lieu.
One of the most common loan options used when purchasing a mobile home is what is referred to as a Chattel Loan.
It is pronounced like “cattle” with a hard CHA sound instead! I remember when I first started out at Braustin, I referred to this term as “sha-tel,” so I’ll be sure to save you the headache of the mispronunciation game!
So, what is a Chattel Loan? It simply means that you are obtaining a loan for the home only. The land you place the home on will be purchased separately, or will be owned by someone else, such as a mobile home community.
Benefits of obtaining a Chattel Loan:
- The loan will cover the cost of just the home, which means a smaller loan.
- The land is free and clear. If you stop making loan payments and the home is repossessed, you will still own the land—certainly not a pleasant thought, but a practical one to be aware of.
- The home is taxed separately from the land, meaning smaller monthly payments on what is called escrow (the part of your payment made toward tax and insurance).
The process of buying and installing a home also goes faster when you buy using a Chattel Loan versus some of the loans we will cover below.
However, this type of loan can be considered “high-risk” by banks since it is a home-only purchase. In fact, to balance the risk, banks will typically require at least 5% – 10% down payment and charge a higher interest rate – between 6.99% and 12.99% dependent of course on credit score and total down payment.
Seems a little harsh, but here is why…
Banks take many precautions to protect themselves in the event someone can no longer follow through on the loan commitments, and interest rates are one of them.
Land/Home FHA and VA Loans
FHA and VA loans are loans issued by banks with 80% of the loan being backed by the federal government. The other 20% however is backed by what is called Private Mortgage Insurance, or PMI.
These government backed loan options typically have lower down payment requirements and lower interest rates, between 5.25% and 6.25%. So, it almost seems like a no brainer, right?
Not quite, let’s dive deeper…
Remember the part where I mentioned a PMI? Well, the closing costs roll into the total loan, which tends to raise your monthly payment closer to the interest rate of a Conventional (Chattel) Loan. Once upon a time… PMI was only applied in the first 5 years of a government backed loan, but – these days – it is required for the full term.
When purchasing a mobile home with one of these loan options, there are also certain requirements for the home installation which will require spending more than you may have planned.
Keep in mind, your land is combined with the mobile home purchase in addition to the expense of being placed on a concrete foundation. This can easily tack on $6,000-$10,000 to the total. Did we mention that the home will also need to be secured to the foundation? This is where anchors are installed on each corner of the home to tie it into the concrete, as well as certain deck and inspection requirements.
Because you are receiving a loan for the home and land, the bank has access to both in the event of a foreclosure. So, as a note, the total loan amount is what your home insurance will need to cover. This means instead of insuring a $60,000 home, you are insuring a $150,000+ property.
Things to Consider:
Current Property Owner: Consider the conventional, chattel loan option. This protects your property from foreclosure, saves the added cost of FHA/VA improvement requirements, and reduces the total loan amount considerably.
In Need of Property and Amenities: Rolling your home and land loan into one with the lower upfront costs of a government backed loan may be the route you need in order to get you and your family into an affordable setup.
The lowest interest rates are generally found with a Conventional Mortgage. A Conventional Mortgage is where the bank provides the loan for the home, land, and land improvements as a package deal without any government backing for the loan.
With a Conventional Mortgage, you normally need at least a 20% down payment, and potentially even more if you have poor credit. Since the down payment includes the land and its improvements, a typical down payment can run you tens of thousands of dollars, depending on the land and the home you choose. A Conventional Loan is usually better for folks who are buying their second or third home where they can apply the equity from their old home toward the purchase of a new home.
Land-in-Lieu Loan Options
The phrase “in lieu of” refers to “instead of” or “in place of.”
So… that brings us to our final financial option, Land-in-Lieu!
Pretty fun to say, if I do say so myself!
Land-in-Lieu means that the buyer offers land up as a down payment, instead of the traditional cash route. In fact, that is exactly how the term came to be because it’s literally land in lieu of a down payment, otherwise known as collateral.
This option is pretty versatile as it can be used in both the conventional method as well as FHA!
However, using land as collateral in a Conventional Loan does have the consequence of no longer having your property free and clear from the home purchase should a foreclosure occur. Just as you would not receive your 10% back from the bank, nor would they give your land back.
Of course, you don’t get to choose how much your land is worth as a down payment, it will need to go through the process of appraisal and the down payment value would be determined from there.
So Which Loan Is Best for Me?
The intention of this article is to serve as a resource for potential homeowners and as a bit of “peace of mind.”
Remember, this decision is HUGE!
No need to rush, take the time to think through these available loan options and very carefully weigh the pros and cons discussed above, because in the end, you are making a decision that can impact the future of your financial stability.
Luckily, you’ve come across Braustin Homes, who will help base your decision with education!
Ultimately, your home buying decisions will come down to what suits your family now and what long term affects you can accept later. No loan is perfect, because, the fact is, it’s a loan. You are paying not only the price of what you are buying, but also the price of the loan.
Unless you have tens of thousands worth of “cold hard cash” saved up to cover the total cost, then you are totally in the clear!
But for the rest of us, how fortunate we are to have these loan options to invest in something that can appreciate, and provide security in a market with ever increasing rent prices and decreasing rent choices!
So that’s it: Mobile Home Loan Options: What is right for you? 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 and visit our Mobile Home Financing Options page. We would love to chat with you or hear about your experience on our Facebook page or through our Contact Form.