Costing between $60,000 and $120,000, mobile homes are by no means an easy, out-of-pocket purchase, especially for those with a bad credit history. The same can be said for manufactured and modular homes. Luckily, there are several financing options available, including FHA loans, VA loans, and more.
In this in-depth article, we cover everything you need to know about mobile home loans for bad credit, from credit score assessment and typical loan terms associated with low credit scores to some of the most reliable financing options you can resort to.
Buying a Mobile Home With Bad Credit
Your credit score is a number that’s reflective of various credit use activities, including account lifespan, percentage of used credit, type of debt accounts, the total amount of debt, and payment timeliness.
Some credit use activities help boost credit, like repaying your debt fully and on time. In contrast, others reduce credit, like going beyond your designated credit limit, late debt repayment, and delinquent accounts.
Credit scores are a valuable metric because they give the lender a general idea about how the borrower handles money. That said, when trying to get approved for a mobile home loan, your credit score will be used to assess your financial situation, along with the risk of lending you money.
For instance, if your credit score shows that you’re having a hard time keeping up with debt payments, or if you have a delinquent (past due) account, lenders will be hesitant to accommodate your mobile home loan needs. Therefore you’ll find it extremely challenging to secure a loan.
Does that mean it’s impossible to get a mobile home loan with bad credit? Not at all. There are quite a few lenders who are more than willing to work with people with low credit. However, such loans come with special terms that are determined based on a person’s credit history.
Low Credit Mobile Home Loan Terms
In some extreme cases, credit scores can be the most determining factor as to whether or not a loan is approved, but such cases are few and far between. In most cases, credit scores merely affect the terms that come with a loan.
Loan terms are basically the conditions set by the lender to offset the lending risk. Loan terms can dictate the minimum amount needed as a down payment. They can also dictate the interest rate that comes with the long as well as the length of the repayment term.
A lender may require a down payment as high as 35% just to feel safe lending a borrower the money they need. Keep in mind that the higher the down payment, the more invested the borrower is, which guarantees the loan is secured in the lender’s eyes.
Another thing you should keep in mind is that the more dire the borrower’s credit situation, the higher the interest rate on the loan is likely to be to offset the risk of lending. Therefore, it can also be viewed as: the higher the interest rate, the greater the risk that the lender is taking.
Here’s where things become clear concerning the influence your credit history has on loan approvals: bad credit is almost guaranteed to garner higher interest, which, in turn, is translated to higher monthly payments.
If the borrower can prove that they can make these terms work and have no problem making their monthly payments in full and on time, their loan request will most likely be approved. If not, chances are their loan will be rejected.
Having said that, you must work to improve your credit score as much as possible before you apply for a loan, be it for a mobile home or any other purpose. The higher your credit score, the lower the down payment and overall paid interest.
Best Loans for Mobile Home Financing
Now that we’ve covered how loans are processed based on credit history, let’s discuss some of the most reliable loan options for mobile home financing.
The Federal Housing Administration (FHA) loan program features two suitable loans for financing mobile homes, namely Title I and Title II.
Title I loans are quite versatile in the sense that they can be used to buy new or used mobile homes, or they can be used to repair and improve owned mobile homes.
Even if you have no intention to buy the land on which you’re going to set your mobile or manufactured home, you can still acquire a Title I loan. This is because mobile homes are typically situated within the confines of mobile home parks anyway.
However, note that you’ll need to provide a signed mobile home plot lease. The initial term for the lease should be three years at least.
Title I loans come with a few limits regarding their amounts and terms that you must consider. For a manufactured (mobile) home and lot, the maximum loan amount is $92,904. For just a home or just a lot, the maximum amounts are $69,678 and $23,226, respectively.
As far as loan terms, manufactured homes and single-wide homes and lots come with a loan term of 20 years. Alone, a manufactured home lot comes with 15 years. Lastly, a multi-unit home and lot come with a loan term of 25 years.
Title II loans are different from Title I loans in that they can’t be used for buying mobile homes on leased land, whether the land is a mobile home park or a mobile home community.
Title II loans are intended primarily to finance qualifying mobile homes, including land, which makes them ideal for people who intend to utilize their mobile home as their primary residence place.
The eligibility requirements for Title II loans are a bit stiffer than Title I loans. For example, the mobile home’s floor area must at least be 400 square feet, and the home itself must have been constructed after the 15th of June, 1976. Furthermore, the mobile home must be built in its entirety on a permanent chassis.
Lastly, to acquire a Title II loan, the mobile home you’re going to buy must fall under a real estate classification. We’re not quite sure why, but our best guess is for state tax purposes.
The great thing about Title II loans, though, is that they have fairly low down payments, as low as 3.5%. They also have long terms of up to 30 years.
The Department of Veterans Affairs offers VA loans to members of the military community. You can use a VA loan to purchase both a mobile home and the piece of land on which it’ll stand if you don’t already own land.
To qualify for a VA loan, you have to provide an affidavit of affixture, which is basically a document that proves your ownership of the piece of land on which you’ll set up your mobile home. You’ll also need to meet a few local and VA requirements.
Yes, it’s possible to finance a mobile home purchase with a personal loan. After all, mobile homes are much cheaper than traditional homes. If you’ve never applied for a personal loan before, they’re basically loans that you can use for whatever reason. The caveat? High interest! Personal loans come with higher interest than most other types of loans.
The great thing about personal loans, aside from that they can be used for any purpose, is that they don’t require collateral and are easy to apply for. Unfortunately, however, not many lenders offer personal loans large enough to buy a mobile home, as the maximum for most lenders is anywhere from $25,000 to $50,000.
Chattel loans are personal property loans that can be used for the purchase of mobile homes. They can also be used to finance boats, planes, farm equipment, and more.
The thing about chattel loans is that their approval is mainly tied to land ownership. In other words, if you don’t own the land on which your mobile home will stand, you may find it challenging to secure a chattel loan. It’s not impossible, though.
Chattel loans tend to have shorter repayment terms than traditional loans, so you can expect larger monthly payments. However, the best thing about these loans is that their closing process, which involves paying certain fees before becoming the legal owner of a given property, is easy.
Another way you can secure a loan for your mobile home purchase is through the Freddie Mac Home Possible program. It’s a traditional mortgage program, but it does finance manufactured homes.
Upon meeting the program’s qualification requirements, you’ll be able to choose between fixed- or variable-rate mortgages.
Down payments with the Freddie Mac Home Possible program are pretty attainable and can be as little as 3%. What’s more, grant or gift money can be used in some cases to cover down payments.
Fannie Mae mortgages are only accessible for mobile home financing through the MH Advantage program. Unfortunately, the eligibility requirements for this program are challenging to meet, which is why this option is last on our list.
To qualify for a Fannie Mae mortgage loan through the MH Advantage program, your mobile home must be set up with a driveway. Not only that, but you need to connect the driveway with a sidewalk. Moreover, you have to meet certain standards that have to do with architecture, construction, and energy efficiency. Quite the hassle, as you can see.
On the bright side, the good thing about these mortgage loans is that they come with 30-year terms and can be secured with down payments of as little as 3%. To add, their interest rates tend to be notably low, so you don’t have to worry about making substantial monthly payments.
Having bad credit shouldn’t by any means stop you from securing a mobile home loan as long as you’re able to accommodate the terms that come with the loan.
Of course, you may not be able to secure the loan from a traditional lender, but as you’ve seen, there are plenty of options that you can resort to, with some being more convenient than others. So, choose the one that makes most sense for you and accommodates your needs. Good luck!