Mobile Home Financing Options
We understand that the home buying process can seem pretty intimidating. We get it; we've all been there too! We're here to make this journey as smooth as possible for you and your family! Give us a call or reach out through our contact form. We truly appreciate you allowing us to earn your business.
Chattel "Home Only" Option
Chattel loans (rhymes with “cattle loans\”) are the most common mobile home loans. It is the loan type used when the land the home sits on is not part of the loan package. If you don't own your home's land, you will likely need a chattel loan. Chattel loans typically have a slightly higher interest rate and a shorter loan period than a mortgage loan, plus there are some advantages. The shorter payback time reduces the actual dollars paid to the bank as interest; plus, it makes your home free and clear sooner than a more extended loan period. You don't need to pay for private mortgage insurance (PMI) with a chattel loan. Finally, you can put your home in a mobile home community that offers more amenities than you may be able to afford if you placed your home on your own land (such as a giant swimming pool). Since you are spending less upfront, your down payment will be less (often much less) than if you needed to finance a home and the land, not to mention the freshwater, sewer or septic, electric, and gas connections. The smaller down payment makes it easier for many people to get into homeownership with a chattel loan than other loan types.
Conventional Mortgage "Land and Home" Option
The lowest interest rates are generally found with a conventional mortgage. This mortgage is going to the bank to finance the mobile home, the land, and the land improvements. The downside to a conventional mortgage is you usually need a larger down payment to get this type of loan. Plan on a down payment of at least 20% for a conventional mortgage. Since the down payment includes the land and land 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 people who are buying their second or third home, where they can apply the equity in their old home toward the purchase of a new home.
Land in Lieu Down Payments
Do you have a piece of land you own outright? Good news! You can use the value of the land toward your down payment. Your land will need to appraise high enough to meet the down payment threshold the bank wants, but you may not need to come up with additional cash for your down payment.
Government Options: USDA, FHA, VA
USDA, FHA, VA Government loans, such as FHA loans and VA loans, are very similar to conventional loans in that they buy the land and the home together. Government loans usually require a much smaller down payment than commercial loans, and with the VA loan, the down payment may even be $0. The downside of a government loan is there are more requirements and restrictions than commercial loans, plus the interest rate will often be a little higher than a conventional loan. If you put down less than 20% on the home, you will also likely have to pay for private mortgage insurance (PMI). Finally, be prepared for the approval process to take a few extra weeks with a government loan.
Choose Your Own Lender
You can utilize your own bank or private lender. Our goal is to make your home buying experience as easy as possible, so we'd love to help you find the mobile home of your dreams, whether you use our lenders or your own. Generally, your own lender will be your favorite bank or a friend or family member who would like to personally loan you money. The advantage of using your own bank is convenience and that you already have a built-up relationship. The only disadvantage is if your bank does not typically handle loans for mobile homes, you may find getting approved for the loan harder than with our lenders, higher deposits may be required, and possibly even a higher interest rate may be assigned to your loan. Just watch the details when you go through the borrowing process. Borrowing from a friend or family member is often offered at lower interest rates or smaller down payments. When borrowing person-to-person, we recommend hiring your own attorney to review the documents to ensure the loan arrangement is fair, no matter how much you trust the loan. This can help when the unexpected comes up; for example, what happens if the lender passes away? You should also know that loans between friends and family members can change the relationship, so be sure to talk through things like what happens if you lose your job, if there is a late payment, etc. Saving a few dollars is not worth driving a wedge between you and someone you care about. Through communication plus clear understanding of the loan arrangement can go a long way to preserving a healthy relationship.
When someone is paying for a home and installation with money they already have “in the bank,” we call it a “cash deal” (but please, don't bring actual cash to the dealership!). We've closed on many mobile homes where people just bring us a check to pay for everything.
Poor Credit Options
Yes, we help a lot of families with poor credit. Anyone with any credit score can get financing, BUT it doesn't always make sense to do so because the interest rate and required down payment may be too high. If you have a credit score over 500 and a decent down payment, usually we can find you acceptable financing, but the only way to know for sure is to apply for a loan. We talk about mobile home financing with poor credit in a blog post that goes into your options in finer detail. We usually suggest that if your credit score is super low and you have no down payment, you talk to the friendly team at Next Step who helps people take the proper steps to be ready to buy a home. Next Step is an independent nonprofit whose sole purpose is helping people get their finances in order so they can buy a home. If you are not sure whether or not you should try for a loan, feel free to give us a call and talk to one of our Housing Consultants about your specific situation.
What Do Banks Look For?
There are several things the banks will look for when determining if they will offer your financing for your new manufactured home in Texas. Each bank has its own unique set of criteria for determining this; however, these are some factors that all banks consider.
Credit Score: Your credit score is a number that gives the banks a snapshot of your financial past. This number factors in payment history, credit utilization, and length of your credit history. The higher the number, the better your credit. There are three credit bureaus that each produce a separate credit score for you. Some banks may only look at one, whereas others will look at the sum of all three. As a new homebuyer, you must know where you stand concerning your credit score so that you are aware of the financing options available to you.
Current Debts vs. Current Income: The banks also look at the ratio between your existing debts and current income. This is commonly referred to as your DTI. Your credit score is essential; however, a low credit score can be offset with a higher down payment. Banks are legally not allowed to lend you money if they determine you do not make enough money to cover your current debts and add a new mortgage payment. Items that show on your credit reports as monthly obligations will factor into your DTI. So will things like child support and loans you co-signed for. When figuring out your debt-to-income ratio, the bank looks at all the expenses associated with your home purchase. This includes lot rent, land costs, taxes, and homeowner's insurance. If a family member allows you to place your home on their property at no cost, make sure you disclose that to the banks.
When figuring your debt to income ratio, the bank looks at all the expenses associated with your home purchase. This includes items like lot rent, land costs, taxes and homeowner's insurance. If a family member is allowing you to place your home on their property at no costs, make sure you disclose that to the banks up front.
Job History: At a minimum, the banks will need to see your two-year work history. This does not mean it must be at the same job. You will need to show W-2s and pay stubs to document your job history, so do not count under the table jobs that cannot be proved with a paper trail. Some banks require you to detail a more extended job history.
Down Payment Percentage: The amount you're willing to put down as the initial investment for your new manufactured home plays a critical role in your bank application. Even the most challenged credit can get approved for a loan with a large enough down payment. In most cases, the minimum allowed by a bank will be 5% and can go as high as 40%, depending on the factors above.