Different Types of Mortgages for Modular Homes

Alternative housing options have always fascinated humans. Those living in migratory patterns and remote locations often prefer more accessible dwelling options.

In this regard, modular homes have become increasingly popular due to the high property prices and convenience.

Reasons why modular homes are a good investment?

Financing a modular home

A modular home is built in a factory. And the final products are assembled at the site of the house.

Given that it is a home constructed off the site, one may have concerns about its validity.

Following are some of the reasons to invest in a modular home:

Incredible sustainability

One of the core reasons today’s generation inclines toward modular homes is their environmental-friendly traits.

Here is how a modular home adheres to the green code:

  • The overall aspects of the home are nature-friendly: VOC-free paint, quality insulation, and wooden floors
  • The waste during construction is minimal
  • The modular structure lowers energy consumption, enhancing their long-term appeal

Modifying perceptions

Initially, people categorized modular homes as mobile structures using low-grade construction materials.

Fast forward to this day, and people have new beliefs about these homes.

The material used at factories is among the best grades.

Custom kitchen designs and granite countertops are the fundamental changes that have brought modular homes to a new standard.

High strength

Modular Home Mortgages and Financing Options

The aging of modular homes is more fine-tuned than the other types. FEMA officials also affirmed their durability and got impressed by their resistance during hurricanes.

Lighter on the pocket

Unlike common assumptions, modular homes are cheaper on the pocket than other housing options. If you invest in a modular structure, you save hundreds or thousands of dollars.

Furthermore, the home is thoroughly inspected at every phase of construction. The chances of faults in the final structure are kept at a minimum.

Fast construction process

Some people prefer getting a customized home swiftly and without many formalities.

Most people nowadays are highly impatient and want the house of their dreams to get ready in a blink.

Modular homes are gaining popularity because construction gets completed faster than brick-and-mortar homes.

Its fast turnaround time allows the buyer to save hundreds of bucks on rent or temporary housing.

Thus, we can safely conclude that modular homes are the most viable option for the Millenials and everyone else.

Its affordability, customization, and environmental-friendly nature make it a winner.

Different types of mortgages for modular homes

mortgage options for modular home

Most prospects looking for a home are surprised by the current modular home status.

The diverse options include high-end upgrades and innovative details. These are generally more expensive in stick-built homes.

However, modular homes follow the local business codes like their stick-built counterparts. They have the same financial options too.

You have several ways to mortgage a modular home. The most popular ones are mentioned below:

Fannie Mae

Fannie Mae buys the loans secured by modular homes following the International Residential Code (IRC).

In light of these regulations, modular homes are eligible for the rules listed under one-unit properties. These properties should abide by the standards, such as:

  • Conforming to the local building codes
  • Classification as the real property
  • Retain the same quality of material and traits as brick-and-mortar homes

The financing must be recorded with a validated deed of trust. It should represent the real-estate transaction as the applicable state laws.

With this program, you receive a 30-day fixed-rate mortgage. It also offers a lower interest rate than other programs.

You must provide a 3% down payment when opting for Fannie Mae. Plus, you should maintain a 620 credit score to receive the loans.

Along with these, the house plan should also follow specific guidelines. For instance, it should have 600 square feet of living area and a width of 12 feet.

It would help if you also satisfied other structure requirements like installing a driveway and a sidewalk connecting the porch, garage, and driveway.

The best part about these loans is paying a lower interest rate than conventional loans for modular homes.

Freddie Mac

You can get the traditional financing from the regional Mortgage Programs.

Their requirements for the homes are designed to ensure that purchased mortgages are originated and services to help the borrowers buy homes that they can afford.

The borrowers who get approved for the loans can pick the fixed-rate mortgages. They can opt for an adjustable rate of 7/1 or 10/1.

You get qualified for the loan if you can pay a 3% down payment and the money to cover this payment.

Moreover, the home must meet the following criterion:

  • It should be a 1-unit dwelling fixed to the foundation.
  • The anchoring system should follow the HUD codes. The anchoring system should have components like the piers, ties, and footings supporting the home and keeping it fixed on the ground.
  • It should be 12 feet wide and contain 600 square feet of the general living area.

VA Loans

These are the loans backed by the Department of Veterans Affairs.

There is no need to pay a down payment with this type of loan, and the minimum credit score varies from lender to lender.

Modular homes are a tempting option for many VA lenders. Yet, there are some hurdles along the way that could make it cumbersome to get loans for your modular property.

In fact, veterans looking to purchase a modular home go through the same steps as buying a brick-and-mortar home.

Often, borrowers require construction loans from the lenders, and then they refinance these short-term loans as permanent ones.

Even though there is no need for a down payment, you must have an affidavit of affixture. This document verifies that the home is attached to the land under your ownership.

It must meet the local and VA criteria too.

Here are the modular homes that are eligible for VA loans:

  • The sewage system of the house must be sanitized
  • The house structure should be free of fungi and insects
  • There should be no use of lead-based paints in the house
  • The roof should be of high quality
  • The electric and heating system should be functional
  • The size of the home should be adequate for comfortable living

Although the VA financed modular homes cover 100% of the loan, a VA funding fee needs to be paid. But they waive the fee for disabled veterans.

The minimum credit score is 620, and some lenders may accept a score below it. So, you should evaluate all your options before you make the final call.

Veterans who are bankrupt or in foreclosure have to wait for two years from the finalization date to qualify for the loans of a modular home.

Before you apply for the Veterans loan, you should get a Certificate of Eligibility (COE).

You can obtain this from the Department of Veterans Affairs. This document certifies that your military service requirements for the VA loan are complete.

Some lenders may ask questions about your veteran status. So having this certificate is always handy.

FHA Loans

FHA loans can finance many housing options. But when it comes to modular homes, you may find some lenders skeptical about the process.

Keep in mind that the FHA doesn’t fund the loans it guarantees. The bank underwriting the loan finances the funding.

Nonetheless, FHA participates in determining which lender can finance the modular homes.

A modular structure that you opt for should fulfill the following criterion:

  • It should be a permanent fixture on the ground
  • There must be a one-year warranty from the factory if it is brand new
  • The land must be acceptable for FHA, meeting all water and construction requirements
  • The home should abide by the Model Manufactured Home Installation Standards
  • The home must be built after June 15, 1976
  • A borrower gets qualified for the FHA loans if they complete the following requirements:
  • You have to pay the down payment of 3.5%
  • The previous credit score should be 580, at least
  • Keep a debt ratio of 31% on front-end and 43% on the back-end

Some lenders may impose further rigid requirements to ensure their funding isn’t at risk.

There are two types of FHA loans for modular homes:

  • Title I – It is used to purchase a home but not the land where it sits. The borrowing amount relies on the property type. But the borrowing limits are lower.

This type of loan is a viable option if you operate on a low budget.

  • Title II – This type of loan buys the home and the land underneath. The home must fulfill some requirements, like covering 400 square feet.

Doing thorough research and analysis of all the lenders’ terms will help you decide.

It would help if you stayed on your toes until you found a lender with more favorable terms to help you buy a modular home.

USDA Loans

This is the loan backed by the US Department of Agriculture. For the modular home to get approval for the USDA loans, it should meet the following requirements:

  • The housing unit shouldn’t be older than 12 months and should be purchased from a certified contractor
  • The structure should be 12 feet wide and have 400 square feet of space
  • The site of the home should be classified as actual real estate property
  • The lowest part of the home should be more than a 100-year floodplain with water access and waste disposal
  • The home should meet Federal Manufactured Home Construction and Safety criterion

The USDA lenders order an appraisal of the modular homes to validate its standards and send it forth for approval.

There is no need to pay the down payment like the VA loans. And the credit score also depends on the lender’s demands.

Chattel loans

A chattel loan is a personal property loan helping people to finance modular properties. You can apply for the chattel loan even if you do not own the land underneath.

Unlike other loan categories, a chattel loan has a higher interest rate and reasonably short-term length.

The shorter terms often mean higher monthly payments but your debts end sooner than in other cases. Also, the closing process is quicker with chattel loans compared to others.

You can qualify for the chattel loans if you abide by the following requirements:

  • Do you aim to rent the land? If yes, you have fewer loan options than buying the property.
  • The kind of modular home will also create an impact on your loan amount
  • Ensure your credit score is sound so you can get a lower interest rate

The lender can overtake your property if you default on the chattel loan they provide. Hence, you should be paying on time to avoid losing the home.

FAQs

Can you get a mortgage for a modular house?

Yes, banks offer several mortgage plans to support the purchase of modular homes. However, there are different rules set by lenders.

One should study all the clauses closely to make an informed decision. Generally, lenders lay the groundwork for modular home loans in line with traditional loans.

What is the credit score requirement for modular home loans?

The credit score and down payment are the two main drivers determining the mortgage amount.

If you want to qualify for a low modular home mortgage rate, you should maintain a credit score of 700.

What is the lasting period of a modular home?

A modular home building lasts the same length as a regular building.

The maintenance and cleaning of the home are the primary factors that determine the lasting period of a modular home.

Does a modular home require planning permits?

Yes. All modular homes must get planning permission from the local authorities.

Final thoughts

Compared to traditional brick-and-mortar homes, modular homes are cheaper on the pocket and environmentally friendly.

If you plan to purchase one, you should research the financing options and fulfill the eligibility regulations.

It is essential to invest in a home that isn’t too old or manufactured at factories with poor reviews.