What Is a Chattel Mortgage?

If you’re buying a house that’s already been built, you’ll need to take out a mortgage. But have you ever wondered how you’d finance a mobile or manufactured home?

When you buy movable property with no land attached, you’ll need to take out what’s called a “chattel mortgage.” But what is a chattel mortgage, and how does it differ from a traditional mortgage? 

What is a chattel mortgage?

A chattel mortgage is a loan used to finance movable property (like mobile, modular, and manufactured homes), as opposed to fixed real estate. “Chattel mortgage” is an older term, and many lenders refer to these mortgages as “manufactured home loans.”

The difference between a chattel mortgage and a traditional mortgage essentially comes down to the difference between real property and personal property:

• “Real property” refers to land and any buildings attached to it
• “Personal property” refers to tangible, movable property

For instance, if you’re hoping to buy a house that sits on a half-acre of land, you would need to take out a traditional mortgage. If you want to buy a manufactured home and some land to put it on, you would need to secure two separate types of financing, namely a chattel mortgage for the manufactured home and a loan for the land.

What is a chattel mortgage for?

Although chattel mortgages are sometimes called “manufactured home loans,” they can be used for a variety of other property types, too:

• RVs
• Houseboats
• Planes
• Large vehicles
• Pieces of heavy machinery

Businesses often use chattel mortgages to pay for construction and agricultural machinery.

The lender has a lien on your property until the chattel mortgage is paid off. If you fail to pay, they can take possession of the property and sell it to recoup their investment.

What sets a chattel mortgage apart from a regular mortgage?

Chattel mortgages and traditional mortgages have a lot in common. However, there are a few important differences to consider.

Many of these differences are because chattel mortgages pose a higher risk to lenders. Movable property is harder to repossess. Unlike real estate, mobile and manufactured homes generally do not appreciate in value. Because of that, even if a lender seizes collateral on a defaulted loan, they may not get their initial investment back.

Interest rates

Chattel mortgages generally have higher interest rates than traditional mortgages. However, borrowers who have high credit scores usually qualify for lower interest rates than those with average or poor scores.

Repayment terms

Manufactured homes, heavy machinery, and other types of property financed by chattel loans usually don’t cost as much as real estate. As a result, chattel mortgages often have shorter loan terms. 

Traditional mortgages usually have loan terms of either 15 or 30 years, and chattel mortgages rarely have terms exceeding 20 years. It’s not uncommon for them to have terms of 5-10 years.

Loan amounts

Because the collateral for chattel mortgages is usually lower in value than real estate, the total value of a chattel mortgage will almost always be lower than that of a traditional mortgage.

Down payments

To offset the higher risk that comes with chattel mortgages, most lenders require higher down payments than traditional mortgage lenders.

How credit score impacts chattel mortgages

Whether you’re buying real estate, financing a car, or taking out a chattel mortgage, higher credit scores almost always translate to lower interest rates. If you can increase your credit score before you take out your chattel mortgage, you could potentially save thousands of dollars over the life of your loan.

It’s worth noting that chattel mortgage lenders often accept lower credit scores than traditional mortgage lenders. In many cases, it’s possible to get approved even with a score below 580.

However, the fact that you can get approved with a lower credit score doesn’t mean you should. Here are a few tips that could help you boost your credit before you apply:

• Get a copy of your credit report and dispute any errors
• Pay down existing debt to lower your total credit utilization
• Avoid applying for new credit
• Continue making on-time payments

If you have a trustworthy close friend or family member with good credit, you might consider asking them if they will add you as an authorized user. If they do this, their on-time payments can boost your credit score.

If you have poor credit or a limited credit history, credit-builder apps like Kikoff may help you strengthen your credit with a range of tools to help you build a positive credit history.

Many new users get started with a credit line. As they make payments, those are reported to all three credit bureaus.

Thinking about a chattel mortgage?

If you’re looking to buy a manufactured home or need to finance a piece of machinery for your business, a chattel mortgage may be a good choice. Although these mortgages are often easier to get than traditional mortgages, it’s still important to take your time, do your research, and compare rates before you commit.

If you’re trying to improve your credit score before you start applying for loans, Kikoff is here to help. We’re a credit-builder app designed specifically for people with poor credit, little credit, or no credit at all. 

It’s free to sign up, and we don’t check your credit. Get started with us in minutes today!