Trailer? Wash your mouth
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.
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.
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
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
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
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.
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.
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
"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."
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
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.
Based on a $25,000 loan, without land
For double-wides set
on concrete, with land
First National Bank
Based on a $25,000 loan. No "mobile"
homes, only manufactured homes
up to 84 months
$99 fee, minimum loan amount $3,000
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.
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.
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.
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
have online publications explaining their loan programs for