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Financing a manufactured home

Trailer? Wash your mouth out.

They're manufactured homes now and, with 19 million people living in them, they're fast becoming the housing style of choice for people who have to achieve the American Dream on a limited budget.

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Today's manufactured homes bear little resemblance to yesterday's air-slipping tin cans on wheels. With improved quality and material, stitched together seamlessly in double-wide sections, they can be indistinguishable from site-built, conventional homes.

But financing a manufactured home still can be unconventional.

'Mobile' means higher rates
In financing, the key is the word "mobile." The less mobile a manufactured home is, the better the financing deal a consumer can get.

Historically, manufactured homes have been financed as personal property, resulting in personal loans that often require a 10 percent down payment, with the remainder financed over 10 to 15 years. Interest rates are higher than mortgages, resembling the rates charged on car and boat loans. However, whether the loan is called a mortgage or not, if it is used to secure your principal home, the interest paid is generally tax-deductible.

Though these loans still are the most common, the changes in the industry have attracted additional lenders and types of loans. Many manufactured homes now require only 5 percent down and finance the remainder over 20 to 30 years.

If the home is immobile and if the owner of the home also owns the underlying land, then the loan is likely to be viewed as a mortgage, gaining vital tax benefits.

How to find financing
   
  • Shop around for financing. Loans for manufactured housing vary widely in their terms.
  • If you're buying a new home in a community, don't feel obliged to take the financing offered by the salesperson.
  • Study the warranty closely. Who will pay for defects in manufacturing or installation?
  • If you also own the land, make certain you can obtain the tax benefits of having the property titled as real property. Yes, it will go on the tax rolls, but the real estate taxes you pay become tax-deductible.
  • If you must title the home as personal property, find out if your state will require you to pay annual motor vehicle fees.
  • Study the area where the property will be located. In the past, manufactured homes were a declining asset, like cars -- they almost always lost value over time. Because the homes are better made today, the ones located in an area of appreciating property values can go up in value.
 

"We have a variety of products and programs that vary according to down payment, the size of the home, and terms extending out to 30 years," said Leonard Zych, executive vice president of Chase Manhattan Mortgage, which has been financing manufactured homes through retailers for 25 years. Chase now offers loans directly to their consumers.

When affordable housing is the goal
Even Fannie Mae and Freddie Mac are players in the market, as buyers of manufactured housing unit mortgages for years and asset-backed securities on the secondary market.

"Affordable housing is central to our charter and our mission, and manufactured housing is a component of affordable housing," says Fannie Mae spokesman Clyde Ensslin.

The added attention from major financing players represents a big step up for an industry that people delighted in running down.

Previously referred to as "box kites," "ovens" and "freezers," the manufactured housing business is in the middle of a growth spurt, blossoming into a $14 billion industry that builds nearly one in three new homes bought in the United States.

In 1997, mobile homes sold for an average of $41,100. The average home had 1,420 square feet, all cooled by central air.

"This market has changed dramatically over the past five, six years," says Kami Watson, spokeswoman for the Manufactured Housing Institute, a trade group based in Arlington, Va.

"The old bias against manufactured housing is dying with the growth of multi-section homes," said John Diffendal, director of research at the investment firm JC Bradford & Company. "The homes have become more residential-looking and that has helped."

Though financing for manufactured homes has begun to more closely resemble traditional-home financing, there are still substantial differences.

Higher interest rates
The big difference for consumers is that loans for manufactured homes tend to carry a higher interest rate.

There are several reasons. Lenders demand a higher rate when a customer has fewer assets to repay a loan with, and buyers of manufactured homes tend to be on a tight budget: Lenders also have less collateral in the deal, because manufactured homes depreciate more quickly and have a shorter life span than traditional homes.

Administrative fees -- loan application fees, credit report fees, document preparation costs and origination -- that are paid up front in a traditional loan are passed along to the lender in a manufactured home loan. The consumer still pays them eventually, however, in the form of a still-higher interest rate.

"In the traditional world of buying a manufactured home, consumers are getting hammered on the interest rate," says N'ann Harp, president of Smart Consumer Services, a consumer education and assistance organization in Crystal City, Va. "It's just the reality of how it is, but, in my opinion, it's consumer abuse."

Personal property loans most common
As mentioned, the best rates are reserved for the buyers who most closely resemble conventional homeowners -- the buyers who own the underlying property and permanently affix the home to it. They will enjoy typical conventional mortgage rates and the accompanying interest tax deductions.

They, however, represent fewer than one buyer in six. All others have to get personal property loans. For them, the interest rates, fees and down payment requirements are all over the map, depending on the lender policies, the buyer's credit and the condition of the home. New manufactured homes tend to have a slightly lower interest rate than used ones.

Manufactured housing loans:
How they rate
When it comes to loan rates, buyers of manufactured homes can pay a little or a lot. The best terms go to a buyer when the manufactured home closely resembles a traditional site-built home -- when it's permanently affixed to land that the home buyer also owns. Here are some of the lenders that offer mobile home loans, their rates and terms.
Lender
Rate
Term
Other conditions
 
NationsBank
13.18%
15 years
Based on a $25,000 loan, without land
 
First Union
7.5%
30 years
For double-wides set
on concrete, with land
 
First National Bank
11.25-11.9%
5 years
Based on a $25,000 loan. No "mobile"
homes, only manufactured homes
 
KeyBank
11.99-12.99%
up to 84 months
$99 fee, minimum loan amount $3,000
 
Latest Bankrate.com
national average
7.20
15 years
National average for
a fixed-rate mortgage
Source: Frances Sauceda, George Raboni, Dan Develle, Debbie Carrick and Greg McBride, Bankrate.com

Although manufactured homes have to have the wheels taken off to be properly installed, many states still consider them to be at least potentially "mobile." So buyers often have to pay annual vehicle license fees.

Retailer financing
For four out of five manufactured home buyers the journey toward financing begins with the person selling them the home. Retailers originate 82.6 percent of the loans, according to the latest survey from the Manufactured Housing Institute.

About a third of all manufactured homes are located within parks, courts or subdivisions set aside just for them. Buyers in these locales usually purchase just the home, not the land. Most often, the retailers selling the homes at one of these manufactured-housing communities can point a buyer toward financing, but buyers should be able to shop for their own.

Limited choices of lenders
While many lenders and banks provide a range of financing plans for manufactured homes, including fixed- and variable-rate loans, another hefty portion stays away from the market altogether.

In a recent Bankrate.com spot-check of 20 large lenders, seven offered no loans for manufactured housing. Several others restricted their offerings to those home buyers who also owned the land.

As more home buyers opt for manufactured homes as an entry into homeownership, the number of lenders offering financing will increase, but the industry remains very concentrated, Zych says. The two largest lenders, Green Tree Financial Servicing Corp. and Green Point Credit Corp., control about 30 percent of the market, he says. The top 10 lenders control about 65 percent of the industry.

Because of these factors, buyers of manufactured homes do not have the leverage to negotiate their financing like traditional home buyers and are at the mercy of the dealer.

If you cannot get a regular mortgage on a manufactured house, the best bargaining chip is a good credit rating, Harp says. She also recommends that consumers check with their local government for incentive programs.

President Clinton's Homeownership Initiative of 1996 -- a drive to increase the percentage of U.S. homeownership -- helped create additional initiatives for manufactured homes. "Lenders are doing their part to try to help what has traditionally been a high-risk buyer," Harp says.

Pay attention to details
Finally, avoid buying in a high-risk area, and read the fine print for hidden fees and rate increases for late payments.

"This is an area where consumers are not aggressive, and it's an income bracket where people are preoccupied in trying to make money to pay the rent, so they're not looking as closely as they should to the details of the agreement," Harp says. "That's how innocent consumers get stumped."

Each state sets guidelines specific to the purchase and financing of manufactured housing, so consumers should also contact their local consumer affairs office to learn how to protect themselves.

Several organizations on the Web give general buying guides to people interested in manufactured housing, including HUD and the Manufactured Housing Institute. In addition, the VA and HUD have online publications explaining their loan programs for manufactured housing.

 
-- Posted: July 22, 1999
     

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