FHA Manufactured Home Loans: How They Work, How To Get One And More

Manufactured homes can be a very affordable living option. They cost a fraction as much as the typical stick-built home. But when it comes to financing them, there are a few things that you should know. While there are often limited mortgage options, FHA manufactured home loans could be a very attractive choice.

Can You Buy A Manufactured Home With An FHA Loan?

Yes, an FHA loan can be used to purchase a manufactured home. In fact, there are a couple of different programs we’ll go over. The important thing to know is that not every lender offers both programs, so you’ll want to do your research and determine which option best describes your situation. From there you can work toward securing financing for your manufactured home.

How Do FHA Loans Work For Manufactured Homes?

FHA loans are backed by the Department of Housing and Urban Development (HUD). Loans are specifically purchased by Ginnie Mae, which then takes the loans and packages them into mortgage-backed securities (MBS) to be offered on the market to investors, providing the necessary liquidity for the mortgage market. Sellers match up with buyers.

Because HUD standards back these loans in the event of a borrower default, there are underwriting standards that must be met. For clients, the qualifications are the same as any standard FHA loan. Flexible client requirements are one of the big benefits of going with the FHA option over a conventional loan.

Our friends at Rocket Mortgage^® will qualify you for an FHA loan with a median FICO^® Score of 580 or better as long as the portion of your pretax monthly income going toward your mortgage payment is no higher than 38%, with a total debt-to-income ratio (DTI) no higher than 45%.

Once you reach a credit score of 620 or better, the maximum DTI is approved on a case-by-case basis. In no event will you be allowed to have a DTI higher than 57%, but the added qualification breathing room could make the difference in enabling you to get into a home that meets your needs. There are a couple of FHA loan options that apply to manufactured homes.

FHA Title II Loan

FHA Title II loans function very much like traditional mortgage loans from the FHA. You can get all the typical loan terms, including fixed rates between 15 – 30 years, in 5-year increments, as well as a 5-year adjustable-rate mortgage (ARM). These are offered for manufactured homes by Rocket Mortgage.

Loan limits match FHA limits for your county. In most areas, that’s $498,257, but can be as high as $1,149,825 in high-cost areas. There are special limits in Alaska and Hawaii of up to $1,724,725.

To get an FHA Title II loan, you have to be purchasing the land along with your manufactured home so that the title includes the land and the home. If there is a vehicle title associated with this, it has to be surrendered prior to closing.

In terms of the payment, the interest accrues daily and is paid in arrears. This means that if your payment is due May 1, it includes the principal payment plus interest accrued between April 1 – April 30.

FHA Title I Loan

Although you can buy the land with the manufactured home with an FHA Title I loan, you don’t have to. You can purchase the manufactured home on its own. This is considered a personal property or chattel loan and it may be harder to find lenders who will do these loans. Rocket Mortgage doesn’t do Title I loans.

Title I loans can be used to purchase a manufactured home and the land or each can be purchased separately. Because a manufactured home can be purchased on leased land with this option, the FHA requires a minimum 3-year initial lease term with 180 days’ notice of termination for the homeowner. Loan limits depend on what you’re purchasing:

• Manufactured home only: $69,678
• Lot for the home: $23,226
• Manufactured home and lot: $92,904

Similarly, there are different loan terms depending on what’s being purchased:

• Manufactured home or a single wide home and lot: 20 years, 32 days
• Just the lot: 15 years, 32 days
• Manufactured home and lot with multiple sections: 25 years, 32 days

Interest is accrued from the time you get the loan and is calculated based on simple interest.

FHA Manufactured Home Loan Requirements

FHA loans for manufactured homes have requirements for both the property and the borrower qualifying. We’ll run through these in the upcoming sections.

Property Requirements

As with any FHA loan, your property will be required to pass an FHA appraisal. In addition to placing a valuation on your home and/or land, the appraiser is going to be looking at safety and livability requirements. In particular, the manufactured home must meet federal standards that went into effect June 15, 1976. Homes built prior to that date aren’t eligible for federal financing.

In addition to this requirement, the following standards apply to manufactured homes:

• They must have a HUD tag showing it meets national safety standards. If the tag is no longer readable, a letter regarding the HUD plate or certificate has to be secured from the Institute for Building Technology (IBTS).
• The home must be attached to a permanent chassis for initial transport and if the homeowner plans to move the home.
• If the home is being permanently affixed to the land, a requirement for Title II loans, the foundation must meet the requirements of the Permanent Foundations Guide (PFGMH), with record of an inspection. Rocket Mortgage will only do loans where the land in question is the first land on which the home has been placed.
• FHA requires that the manufactured home be at least 320 square feet, while Rocket Mortgage specifically requires 400 square feet.
• For a Title II loan, the home needs to be titled with the land and there can be no outstanding vehicle title.
• Rocket Mortgage requires that the property either be previously occupied or be a year or more old based on the certificate of occupancy date. The home also has to be attached to the land for a year if no one has lived there.

Borrower Requirements

The FHA also has several requirements for clients who are looking to qualify for a mortgage. These requirements are standard regardless of the type of home being purchased:

• Credit score minimums: Although it’s possible to qualify with a FICO^® Score of 500 or better with a 10% down payment, most lenders, including Rocket Mortgage, require a credit score of 580 or better. You also may be able to qualify with a slightly higher DTI if your score is 620 or better.
• Down payment requirements: If your credit score is 580 or better, you’ll need just 3.5% down. Otherwise, the minimum is 10%.
• DTI: If your credit score is between 580 – 619, you’ll need a housing expense ratio of no more than 38% with total debts of no more than 45%. Above 620, your maximum DTI is decided on a case-by-case basis based on other factors like your credit score and down payment, with an absolute maximum of no more than 57%.

Pros And Cons Of FHA Manufactured Home Loans: At A Glance

Let’s run through some of the pros and cons of using an FHA loan to buy a manufactured home.

How To Get An FHA Loan For A Manufactured Home: 10 Steps

Now that we’ve gone over what you need to know when getting an FHA loan for a manufactured home, let’s run through what you need to do to actually make it happen.

1. Gather The Necessary Documentation

The first thing you should do is gather necessary documentation. Specifically for manufactured homes, there are three things you should think about:

• Certificate of occupancy: If you can track this down, it could help you, particularly if your lender has requirements around the purchase of a manufactured home that’s considered new construction.
• IBTS letter: This is only necessary if your HUD tag has worn away.
• Foundation inspection records: You may be able to skip the foundation inspection and save money if you already have one on file.

Beyond this, you’ll want to have all the paperwork typically associated with a mortgage preapproval ready. Every situation is different, so this isn’t an all-encompassing list. On the other hand, some of this documentation may not apply in your situation. But this is a good jumping off point:

• 2 years of tax returns
• 2 years of W-2s and/or 1099s
• 2 months’ worth of bank statements from any account being used to qualify
• Two most recent pay stubs

2. Research Lenders

Next, make sure you research the options offered by different lenders. Not every lender offers manufactured home loans. A smaller subset of these lenders offer Title I loans, which you’ll need if you want to put a manufactured home on leased land. As a reminder, our friends at Rocket Mortgage only do Title II FHA loans at this time.

3. Apply For Preapproval

By applying for preapproval with one or more lenders, you are showing sellers or builders of manufactured homes and the real estate agents they may be working with that you have the financing to back up any offer you choose to make. This is often a precondition for sellers to even let you look at the home.

4. Compare The Loan Terms Of Various Offers

Once you’ve been preapproved, compare your different loan options to find a lender who offers the programs you need at the most favorable loan terms possible.

When comparing loan estimates, one key difference between the base interest rate on which your monthly payment is based and the annual percentage rate (APR). Because APR includes closing costs, this is one way to determine how much you can expect to need to bring upfront along with the total fees associated with your loan.

5. Choose A Lender

Beyond rates and initial costs, there are a handful of other things you should consider when choosing a lender, including the following:

• Will the lender service your loan? Your mortgage servicer is the entity to which you make your payment.
• What payment options are offered? Are there special fees associated with any of them?
• Assuming you get your paperwork in and the appraisal goes smoothly, how quickly can they close the loan?
• What types of manufactured home loans and terms do you offer?
• If rates drop, will you notify me about refinancing opportunities?

6. Find A Home And Make An Offer

Once you’ve been approved and selected a lender, it’s time to go out and find a home. You can do this by finding an existing home that someone is selling or working through a manufacturer or dealer.

Particularly if you’re making an offer on an existing home, one of Rocket Homes^SM Partner Agents who understands the market in your area and your goals could help you craft a competitive offer and be a seasoned negotiator in your corner.

7. Get An Appraisal

Your lender will need an appraisal done. This has two purposes: To provide a value for the home and the land you may own with it as well as checking on the livability and safety of the home.

The valuation portion of things is fairly straightforward. Lenders can’t let you borrow more than the property is worth. If your appraisal comes in low, you can renegotiate, bring the difference to the closing table or walk away.

Health and livability are a different matter altogether. If the issue is considered serious enough, you or the seller may be required to make repairs prior to your moving in. A good example of this is chipping paint in homes built prior to January 1, 1978. Lead paint was more commonly used prior to that date.

8. Get A Home Inspection

An appraiser does a basic safety check, but the primary purpose is just to make sure the home is livable if you moved in. A home inspector will do a full check of the home and make sure you understand any issues the home has now or that could arise in the future. They’ll do checks on things like the electrical and plumbing systems as well as any HVAC system and the foundation.

If you have an inspection contingency in your contract and discover an issue bad enough, you can ask that it be repaired before you move in. If the seller doesn’t want to do that, you may ask them to lower the price so you can take care of it yourself. Alternatively, you can walk away and get back your earnest money deposit.

9. Do A Final Walk-Through

The final walk-through will give you the last opportunity to make sure everything is as expected prior to moving in. One of the most important things you can do at this time is to pay particular attention to whether repairs you may have requested were completed.

10. Receive Final Approval And Close On The Home

Once you’ve gone through underwriting and gotten a satisfactory appraisal back, you should receive final approval to close on the home. At this time, be sure that you fully review your closing disclosure. Make sure all the details are accurate and that you don’t see any surprises.

If there are significant changes between your loan estimate and the final closing disclosure, your lender may have to issue a new loan estimate, which could delay the process. Be sure to communicate any issues you find as soon as possible. If everything looks good, it’s time to sign and get the keys.

The Bottom Line

There are two types of FHA loans that allow you to buy a manufactured home. A Title II loan is a traditional mortgage for a manufactured home and the land underneath it. The home is permanently attached to the land on a permanent foundation. A Title I FHA loan is for the home, the lot or both. The key difference is that you can buy on leased land and move the home.

The home must meet national standards for manufactured home construction as well as strict standards for the foundation, if there is one. There are standard guidelines for clients that apply to any FHA loan, such as having a qualifying credit score and a down payment of at least 3.5%. When it comes to buying the home, the process is similar to any mortgage. Preapproval helps.

If you’re feeling ready to get started, begin the approval process with our friends at Rocket Mortgage.