How Does Trailer Home Financing Work?

Are you interested in buying a mobile home and placing it on a piece of land? If so, you’ll need to find a financing option that suits your needs. But how does trailer home financing work? The process is a bit different than traditional mortgages, especially if you don’t own the lot that the mobile home will be placed on. 

How does trailer home financing work?

To answer the question, “How does trailer home financing work?” It's important to first determine whether the home will be classified as real property (like a stick-built house) or personal property (like a vehicle). That classification determines what type of loan you can use. 

If you own the lot (or are buying it) and want to place a manufactured home on it, you can apply for a traditional mortgage. The mortgage works about the same as it would if you were purchasing an existing home, which means that you would:

• Apply for a loan
• Find a house
• Put in an offer
• Make a down payment
• Pay your monthly installments for the term of the mortgage (usually 30 years)

Here’s a closer look at some of the variations associated with trailer home financing that could change the equation. 

Mobile home vs. manufactured home

People often use these terms interchangeably. However, there is a difference. Technically, mobile homes were non-permanent housing structures built before June 15, 1976, which is when federal HUD construction standards were implemented. 

Trailer homes built after that date are classified as “manufactured.” They comply with federal HUD standards, which resulted in safer, higher-quality structures. 

Manufactured homes generally qualify for more financing options, including a traditional mortgage, especially if the following applies:

• The home is permanently attached to a foundation
• You own the land it sits on
• It’s titled as real property

The newer and more permanently installed the home is, the easier it typically is to finance. 

Single-wide trailers are a common exception. They are often titled as personal property and are frequently registered with the DMV in the state where they are located. They are rarely attached to a slab, and owners usually pay lot rent for the property where the trailer is parked. 

Chattel loans vs. traditional mortgages

A chattel loan is used when you are financing a trailer home as personal property, not real property. You may need to use a chattel loan if one or more of the following apply:

• The home is in a mobile home park
• You lease the land
• The home is not permanently affixed to a foundation 

Since the property you are buying is mobile and not affixed to land, the deals are riskier for lenders. As such, chattel loans have different characteristics, including:

• You’ll have to put more money down
• Interest rates tend to be higher
• The repayment term is shorter, ranging from five to 20 years, depending on how much you are borrowing
• Maximum loan amounts are lower
• The property typically does not appreciate in value

If the trailer home is permanently attached to land you own (or are buying) and classified as real property, you may qualify for a standard mortgage. That comes with perks such as a longer loan term, a lower interest rate, and stronger consumer protections. 

Loan requirements for a trailer home

When evaluating your eligibility for a manufactured home loan, lenders will consider some specific factors. 

Credit score 

Your credit score is one of the most important factors at play. You need to meet the minimum credit score requirements based on the type of loan you are applying for. The higher your score, the greater your odds of qualifying for a better interest rate. 

If your score isn’t where you'd like it to be, use a tool like Kikoff to strengthen your credit history. Kikoff offers a variety of services and financial products to build your score. 

Down payment

Next, you need to have enough cash to put down. You may need to put anywhere from $0 down on a USDA loan to 3.5% down for an FHA loan. Conventional loans require 3% to 20% down. 

Debt-to-income ratio (DTI)

Lenders look at your DTI, which is a percentage of your income that goes toward monthly debt payments. Most lenders want your DTI, including the new housing payment, to be under 43% to 50% of your gross monthly income. 

Government-backed loan options

If the manufactured home is eligible for traditional mortgage financing, you can explore one of several government-backed loan options. The most common is an FHA loan, which requires a credit score of at least 580 and 3.5% down. You may be able to qualify for an FHA loan with a score as low as 500 and 10% down. 

Another popular government-backed mortgage option is USDA, which is available to eligible buyers who are purchasing property in rural areas. 

Manufactured homes are common in rural communities due to the decreased costs compared to traditional construction. To qualify, you will need a credit score of 620 to 640 or higher. USDA programs allow for $0 down, which can reduce your out-of-pocket costs. 

Conclusion

Do you need to give your credit score a boost before applying for trailer home financing? Kikoff can help with credit reporting tools, a secured credit card, verified rent reporting, and more. Build credit responsibly with Kikoff’s plans.