Should I Buy a Used Mobile Home?
By far our most asked question from potential home buyers is: Do you offer used homes?
Yes, we do.
However, depending on why you are asking, used homes might not be the best choice for you. In this blog we will discuss all things used mobile homes and how pricing and availability isn’t what it used to be.
What is a Used Mobile Home?
Used mobile homes are often homes that have been repossessed due to a home owner’s default in mortgage. When this happens, the home is then removed from the home owner’s property and sent to storage in manufactured home model centers as well as the financing bank’s storage areas.
Unlike traditional site-built homes, where the home and land are one piece of real estate, manufactured homes can be financed as “chattel”, meaning only the home is financed and only the home is repossessed in the event of foreclosure.
Used homes can also be sold at model centers from “trade-ins”, where a home buyer trades in their manufactured home to negotiate a portion of the purchase price down.
In today’s discussion we are mainly focusing on bank owned homes being resold from the event of foreclosure.
Used Mobile Homes are not Necessarily Cheaper
We have found that most home buyers are initially asking about used homes because they are under the impression a used mobile home will be more cost effective than a new one. While this may have been true even up to five years ago, we have found it is no longer the case.
First, in looking at pricing of used homes we must think of a bank’s need to recoup their investment as well as time and other costs that have been associated with it. This means a lender will price a home to cover both the remainder of the home loan, the cost to transport the home from the previous owner’s property, as well as time and personnel paid throughout the process.
If that was the only consideration, used homes might still be a good, affordable option. However, home buyers will most likely find used mobile homes are unusually costly. And this cost can be attributed in part to the limitation of consumer choice.
What I mean by this is home buyers submitting their credit applications with low credit scores and a small down payment will find that the chosen lender may decline their application, but counter offer better terms on the financing of a used home rather than a new home. This usually eliminates all other choice but that of a used home (if the home buyer needs their home financed.)
Because the lender owns this home and knows exactly what is needed to recover their investment, they can be more lenient in their lending options. Surprisingly for most home buyers, they can actually find themselves paying more for a used home with better loan terms than a brand new home with less favorable terms.
An example of this would be, say, Home Buyer A has submitted a credit application on a new mobile home at $35,000 with a 5% down payment but she has a low credit score and high debt-to-income ratio.
The lender may counter this by saying she can instead have the $35,000 loan with a 35% down payment OR purchase a used mobile home in the same price range for a 10% down payment.
Home Buyer A might need to accept these terms because she cannot afford $12,000 up front, but can produce the $3,500. Home Buyer A might decide, however, that she would rather delay purchasing her home to work on her credit score and build a larger down payment.
This scenario goes a long way to explain why used homes are no longer a less expensive option, but, because a bank can decide on what they need to turn a profit on their used homes, better loan terms may be used to incentivize the sale of a used home.
In addition, delivery and set-up costs are still added on to the listed home price and will be calculated by distance in the same way a new home purchase would be.
Supply and Demand as Factors in Used Mobile Homes
Another factor in the cost of used mobile homes can be attributed to supply and demand. Used mobile homes are not an endless stream and their availability can change with the economic climate.
A big player in used mobile home pricing, at least in Texas, is the oil field. When oil field work is booming and labor is in high demand, housing is in high demand, too. Oil field companies will buy up a lot of used mobile home inventory for their work force because it is ready to transport and install at the drop of a hat.
Like I mentioned earlier, used mobile homes are not hugely common, so having many purchased all at once creates low supply. This means lenders can charge more because there will be many people who want or need a used mobile home and only the highest bidder can afford it.
In new factory built mobile homes, however, the prices remain much steadier because the production remains steady. Pricing increases on new mobile homes typically come from a cost increase in materials.
Warranties and A/C
There are a few more aspects of used mobile homes that should be considered before the purchase of one.
As with many new vs. used items, new purchases typically have much better warranties. This is true in mobile homes as well. A new mobile home comes with a 90-day Cosmetic Warranty and a 1 Year Structural Warranty from the factory. Not to mention the 1 Year Manufacturer’s Warranty on all appliances.
A used mobile home is given a 60-day Habitability Warranty. This means from the day the used home is set on your property, you have 60 days to get all water and electric connected and tested thoroughly to have any necessary repairs covered by the seller.
Used homes do not necessarily come with all appliances or A/C. You will need to look very carefully into the details of listings and ask questions up front to avoid any surprises on a used mobile home. A/C units are not always included, but they often are in the purchase of a used mobile home. The A/C, however, will likely be the same age of the home and does not come with a warranty. (The home’s A/C ducts are included under the 60-day warranty.)
Resale Value of a Used Mobile Home
One issue homes buyers may or may not consider when looking into the purchase of used mobile homes is their resale value. While used mobile homes that remain on the same property and are moved only for the original sale retain their value very well, and even appreciate, homes that have been moved more than once are immediately disqualified from sale with a government loan (FHA and VA).
While this does not disqualify the actual resale of a reinstalled used home, it does make selling at fair market value much more difficult as many buyers in a mobile home price point use government loans to afford the down payment and interest rate.
In other words, reselling a twice-moved mobile home may result in having to sell for much less than the home’s true value.
Should I Buy a Used Mobile Home?
The fact is, no solution is one size fits all. In our experience, though, buying a used home and reinstalling it on your property is not the ideal long-term investment many families need if they hope to change the trajectory of their family legacy and accumulate wealth with their home purchase.
Used mobile homes are an option in certain cases, and there is a time and place for them, but with a limited warranty, limited resale opportunity, and comparable (and even higher) prices than that of a new home, the benefits do not often outweigh the risks.
And there you have it. That is the breakdown of all things used homes. If we missed any questions you have on this topic, don’t be afraid to drop us a note on Facebook and we’ll be glad to help you.