Should You Buy a Manufactured Home?

What Is a Manufactured Home?

Manufactured homes have been around for quite a while, but the U.S. Department of Housing and Urban Development (HUD) didn't begin regulating them until 1976. Any factory-built home built after June 15, 1976, that meets HUD construction and safety guidelines is considered a manufactured home. Factory-built homes made before 1976 are typically called mobile homes, although that term is sometimes used interchangeably with manufactured homes.

Manufactured homes must be built on a wheeled chassis that gets removed when the home is moved to its permanent site. This differentiates them from modular homes, which are also factory-built, but are built in sections and assembled on a permanent foundation at the home site. A manufactured home can be put on your own land or on leased land in a manufactured home community.

Today's manufactured homes are often hard to distinguish from a traditionally built home. You can choose from a variety of floor plans and add porches, garages and decks. Features may include wood-burning fireplaces, spa bathrooms and high-end kitchens.

Pros of Buying a Manufactured Home

What's the appeal of a manufactured home?

• Cost savings: On average, manufactured homes cost $57 per square foot, compared to $119 per foot for new traditionally built homes. Manufactured homes meet HUD standards for energy efficiency, reducing utility costs, too.
• Manufacturing speed: Mobile homes are built in a factory to uniform HUD standards. Unlike traditionally built homes, construction won't be delayed by bad weather or problems with zoning and permits.
• Mobility: If you want to move, you may be able to take your manufactured home along with you.
• Access to amenities: Some manufactured home parks boast access to amenities like swimming pools, recreation rooms or on-site fitness centers.

Cons of Buying a Manufactured Home

Manufactured homes have some downsides too.

• Extra upfront and ongoing costs: You'll need to pay for the home's initial transport and setup, and manufactured home parks charge rent for space and may charge other fees. Want to put the home on your own property? In addition to the cost of land, you must prepare the site by grading the land, building a foundation, installing utility and water hookups and more.
• Difficulty selling: Manufactured homes can be harder to sell than traditional homes. It's easier if the home is on land you own and you can sell both the home and the property. If your manufactured home is in a park, the landlord may have to approve the buyer.
• Rising rents: The average rent increase in a manufactured home park is 3.5% per year, according to the Manufactured Housing Institute. However, many states exclude manufactured home owners from the legal protections that renters of traditional homes or apartments enjoy. Rent could rise drastically and make your home unaffordable.
• Risk of eviction: Breaking the mobile home park's rules or missing a payment could get you evicted. The park's owners may sell the land to developers, leaving you without a site for your home. Moving a manufactured home on short notice isn't as easy as moving apartments.
• Difficult to move: Moving a manufactured home can cost $10,000 or more—which is why 90% of them are never moved.
• Placement limitations: Some communities restrict where manufactured homes can be placed.
• Depreciation: Manufactured homes on leased land are considered personal property, not real estate. They tend to depreciate over time, while traditional homes generally appreciate in value.

Can You Get a Loan for a Manufactured Home?

A manufactured home on a permanent foundation on your land can be classified as real property and financed with a mortgage. You can finance just the home or both the home and the land it occupies.

But manufactured homes on leased land, such as mobile home parks, are considered personal property and must be financed with a chattel loan. Chattel loans are used to finance movable equipment, such as tractors or bulldozers; the equipment (the home in this case) serves as collateral. Chattel loans usually have higher interest rates and limited consumer protections compared with mortgages. Personal loans, which can be used for any purpose, can also finance a manufactured home. Like chattel loans, personal loans usually have higher interest rates than mortgages.

Manufactured homes that are classified as real property and meet certain other criteria are eligible for mortgages through Fannie Mae and Freddie Mac. They may also qualify for manufactured home loans backed by the Veterans Administration, U.S. Department of Agriculture and Fair Housing Administration (FHA). The FHA even guarantees home loans for manufactured homes classified as personal property.

The credit score needed to finance a manufactured home varies depending on the lender, the loan size and the value of the collateral. In general, however, it's harder to finance manufactured homes than traditional homes. A study by the Consumer Finance Protection Bureau found fewer than 30% of manufactured home loan applications are approved, compared with over 70% of loan applications for site-built homes.

Before financing a manufactured home, get a copy of your credit report from each of the three major credit bureaus at AnnualCreditReport.com. Check your credit score and take steps to improve your score if necessary, such as bringing late accounts current and paying down debt. Be sure to shop around and compare your loan options before making a decision.

Is a Manufactured Home Right for You?

A manufactured home can be an affordable homeownership option, but it's important to recognize the risks. You'll have more options for financing a manufactured home if you own or buy land to house it. If you plan to rent space in a mobile home park, be sure you understand your financial obligations and get lease agreements in writing.