Mobile home loans for first time buyers

Homebuyers with bumpy credit histories looking for lower-cost, easy-qualifying alternatives to site-built homes often choose FHA loans to buy mobile homes. An FHA manufactured home loan may provide a faster path to homeownership than other loan programs.

• How an FHA manufactured home loan works
• FHA manufactured home loan construction requirements
• FHA manufactured home loan qualifying requirements
• Special FHA mobile home loan requirements
• How to find an FHA manufactured home lender
• Alternatives to FHA manufactured home loans

How an FHA manufactured home loan works

An FHA manufactured home loan is a mortgage insured by the Federal Housing Administration (FHA) to purchase homes built in a factory. Although you may hear about FHA loans to buy mobile homes, the term “mobile home” was often used when referring to homes built prior to June 15, 1976, before the U.S. Department of Housing and Urban Development (HUD) changed the manufacturing standards.

Any home built in a factory today has to follow standards set by HUD and is typically called a manufactured home.

There are two types of FHA manufactured home loans: the Title II FHA loan program and the FHA Title I program.

With the Title II FHA loan program:

• You’ll get more competitive FHA manufactured home rates and terms
• Your home must be permanently attached to land that you own

With the FHA Title I loan program:

• You’ll have fewer manufactured home financing choices with shorter terms
• Your home doesn’t have to be attached to land

The basics of FHA manufactured home loans are similar to taking out an FHA loan for a regular home. However, the manufactured home needs to meet FHA-specific property and construction requirements, in addition to meeting basic FHA minimum mortgage standards.

FHA manufactured home loan construction requirements

Once you find the perfect plot of land, FHA-approved lenders will need to verify the following:

• The home site has access to water and sewer facilities
• The site has all-weather access
• The home is taxed as real estate
• The home is permanently attached to land according to local building guidelines
• The home has an approved HUD seal visible on the exterior
• The towing hitch and any running gear is removed
• The living area is at least 400 square feet

FHA manufactured home loan qualifying requirements

Down payment. The minimum down payment is 3.5%, and the purchase of the home and installation costs can be added to the loan amount.

Occupancy. You must live in a manufactured home purchased with an FHA loan.

Credit score. The FHA accepts scores as low as 500 to 579 with a 10% down payment. Borrowers making a 3.5% down payment need at least a 580 credit score. One note: Title I loans require a 5% down payment for any score above 500 for a manufactured home purchase.

DTI ratio. The front-end debt-to-income (DTI) ratio, which measures what portion of your gross monthly income goes toward paying your monthly mortgage payment, is capped at 31%. The back-end DTI ratio maximum is 43% and looks at how much of your income goes toward all of your revolving and installment debts (e.g., student loans and credit cards), including your mortgage payment. Exceptions to FHA DTI rules are possible if you have high credit scores or extra cash reserves.

Mortgage insurance. FHA manufactured home loans require two types of FHA mortgage insurance: an upfront mortgage insurance premium (UFMIP) and an annual mortgage insurance premium (MIP). The UFMIP is equal to 1.75% of your loan amount and paid at closing in a lump sum. Borrowers can roll this fee into their loan amount. The annual MIP ranges from 0.45% to 1.05% of the loan amount and is added to your monthly payments in 12 installments each year.

Loan limits. HUD sets the lending guidelines for FHA loans, and adjusts the loan limits each year based on median home-price changes. In 2022, the FHA loan limit is $420,680 for a single-family home in most counties in the U.S.

Special FHA mobile home loan requirements

An FHA manufactured home that’s not attached to land may still be considered a “mobile” home since you might have to move if it’s placed on rented land or isn’t set on a permanent foundation. The land lease typically needs to be at least three years or longer, renewable annually after the initial lease period ends and clearly state how much rent is paid for the land.

How to find an FHA manufactured home lender

You may need to shop around to find an FHA-approved lender that offers loans for manufactured homes. Follow these tips:

• Search for FHA-approved lenders in your area using the HUD lender list.
• When you talk to lenders, ask about the loan officer’s experience working with FHA manufactured home loans.
• Choose an experienced lender over the lowest loan pricing with this type of mortgage, given all the extra hoops you need to jump through to get both the manufactured home and the FHA loan approved.

Alternatives to FHA manufactured home loans

If you have high credit scores or want to finance 100% of your purchase, consider the following manufactured home loan alternatives.

Conventional loans. Fannie Mae and Freddie Mac are government-sponsored enterprises that fuel the U.S. mortgage market and provide funding for conventional loans. Qualified buyers can access low-rate financing with down payments as low as 3% for manufactured homes. Conventional private mortgage insurance (PMI) is cheaper than FHA mortgage insurance for borrowers with high credit scores.

• Fannie Mae MH Advantage® loan. Manufactured homebuyers need only 3% down for this loan and may be eligible for reduced PMI to help keep their payment as low as possible.
• Freddie Mac loan. This program requires a 5% minimum down payment and can be used to buy a primary or a second home.

VA loans. The U.S. Department of Veterans Affairs (VA) guarantees mortgages on manufactured homes for eligible military borrowers with a 5% down payment. VA loans for manufactured homes also require proof the home is attached to land you own.

USDA loans. If you’ve found a plot of land in a rural area, you may be able to install a manufactured home on it with a loan backed by the U.S. Department of Agriculture (USDA). No down payment is required, but you do need to meet USDA income limits for your area.