The manufactured home loan process is more complex than financing a traditional site-built home.
Not all lenders offer loans for manufactured homes and many who do are not proficient with this loan type. This lack of expertise often results in a less than stellar experience for a manufactured home buyer and the agents involved. These tips should help distinguish the facts from all the noise with the end result a more satisfying home purchase experience.
Is it a manufactured, modular or mobile home --and what's the difference?
A manufactured home is better known by names like mobile home, double-wide or trailer. It is built in a factory and trucked to a homesite, just like a modular home, but that’s where the similarity between the two ends.
A manufactured home is typically built at a factory/plant in 1 to 3 sections (think double-wide or 2 units as the typical manufactured home) on a steel I-beam frame, with axles and tires attached underneath, a welded steel tongue towing-assembly at the front, and the units are towed to the homesite on it’s own wheels by truck. The tongue and wheels are typically removed when the home is installed (these are required to be removed for nearly every traditional loan program). On older, non compliant manufactured homes, you will sometimes see the undercarriage and axles still in place, with only the tires removed.
Manufactured homes are built to a national building code established by the U.S. Department of Housing and Urban Development (HUD) in 1976 and these codes are regularly upgraded. Per HUD's specifications, the home will have a HUD Data Plate affixed somewhere inside, usually on the wall of the master bedroom closet or inside the cabinet door under the kitchen sink. It lists the manufacturer info, date of manufacture, label and serial numbers of the units and all the construction performance specs of the home.
HUD also requires a factory/plant installed 2x4 inch metal HUD Tag listing the label number (often called the “HUD or Red tag”) to be placed about a foot up from the bottom and a foot from the edge on the back rear end section of each unit. These tags start out as bright red (faded over time) or occasionally with older tags a lighter color. In addition, the unit's serial number is stamped into the metal frame-- typically on the undercarriage I-beam/frame or front frame of a unit. Time and wear can often obscure these identifying items.
Here are some examples below.
A modular home is built using essentially the same building materials
and construction methods as a site-built home, except that is it constructed in transportable sections that are loaded on trucks for delivery to the homesite to be connected together.
Some modular homes are built over a steel I-beam frame similar to manufactured homes, and called “on-frame” modulars. Off-frame modular homes are more common. There is a stem wall, or piers and elevated beams, constructed at the site before arrival of an off-frame home, while some on-frame homes are installed on piers the same as manufactured/mobile homes. Modular homes with rare exceptions are treated just like site built homes by lenders so the special rules that apply to manufactured homes don't apply to modular. Below is an example of a modular home being installed in sections.
Mobile homes are factory built home constructed prior to 1976 and were not required to be built to HUD codes and thus are ineligible for traditional home lending. They will typically have different characteristics than manufactured homes built to HUD 1976 standards with little to no roof pitch, small/no eaves/overhang and often the interior walls have late 1960s early 1970s style wood paneling. Below is an example of an older mobile home. Only a handful of specialty lenders will finance mobile homes and if you locate one, you can expect high rates and fees along with very unique qualifying criteria. These property types when sold are often a cash purchase or seller financed.
What happens when a label or data plate is missing from one or more units?
When one or more labels are missing it can cause a loan problem with lenders requiring alternative verification of the label number. These labels are firmly affixed to the back rear of each unit and hardly ever fall off on their own.
No matter the reason, there is a potential solution to a missing label problem. Many experienced manufactured home lenders have access to a company called IBTS. IBTS maintains a database of nearly every manufactured home unit built after 1976 and when provided with a correct serial/label number, IBTS can provide verification of the unit which includes manufacturer, date of manufacture, model name/number, location of factory and first shipment location. They can even provide the initial installation location of the unit(s) for an additional fee. IBTS provides this info in a lender approved verification letter and charges a fee for this service which can range from about $100 to as much as $300 depending on the type of verification and how fast it's needed. The image above is an example of an IBTS verification letter.
Typically a lender can use the info contained in a data plate or a County recorded HCD433 document to help obtain IBTS verification. If none of these are available--or the data listed on them is incorrect (it happens!) -- and no other data exists to help identify a unit(s) the manufactured home would be classified as ineligible for traditional financing.
Foundation Certification Requirements
This is the most misunderstood and problematic issue lenders face. Many agents and buyers/sellers assume if a HCD433 (California form) is recorded against the property it is evidence of a manufactured home having been properly installed on a foundation--and incorrectly believe that's all a lender will need! This common misconception can cause transaction frustration.
The HCD433 has 3 very different versions and is primarily a document, that when recorded accomplishes one and possibly 2 things. The first is to convert the manufactured home from personal property to "a fixture improvement to real property" thus the improvements and land would be taxed as real property by the county. If the correct lender required HCD433A is used, this indicates the home was installed on a foundation system.
A different type of HCD433 -- the HCD433C -- only confirms the transfer of the manufactured home to the real property tax rolls-and does not certify it was installed on a "permanent" foundation system. Occasionally property owners and even county recorders get these 2 types of HCD433s confused.
Below are copies of a HCD433A and a HCD433C -- both older and the newer versions.
Potential problems can also arise based on the type, current condition and construction quality of the foundation used. In my 30 plus lending years financing hundreds of manufactured homes -both new construction and resale-- I have experienced a variety of different foundation systems, some acceptable to lenders at the time of installation--that are not now--and others that experienced a substandard foundation installation and are now in need of repair/modification to be acceptable to a lender.
How do you know a manufactured home's foundation system is acceptable? On conventional loan types, an appraiser typically must state in the appraisal report the home was installed in accordance with the manufacturer's requirements for anchoring, support, stability and maintenance and is an approved foundation system to HUD's standards. If they are not willing to state this, it's highly likely an engineers' inspection and foundation certification letter will be required.
VA requires the appraiser to state the home is permanently affixed to a foundation system conforming to the Permanent Foundations guide for manufactured Housing Standards. Again, if the appraiser is unwilling to confirm this an engineer's inspection and foundation certification letter will be required.
On FHA and USDA loans a licensed engineers' foundation certification letter is required. Occasionally this engineer's letter can be a previous one, however it depends on how old the certification is, along with any improvements/changes made to the home after the date of the certification letter.
Engineers' Foundation Certification letter can be ordered from any licensed engineer, however most experienced manufactured housing lenders will have a source to order from. Cost varies based on location and complexity of the foundation/home, but a typical fee is about $600 to as much as a $1000 or more in our area. Timeframe from order/payment date to receipt is about a week depending on property location. If upon inspection, the engineer can't issue a certification they typically will provide a report of what needs to be done to make the foundation compliant.
In my experience, any foundation repair or retrofit can cost hundreds to thousands of dollars depending of course on the scope of the work needed. Once the work is completed a reinspection is typically required with an additional inspection fee.
Modifications to the original manufactured home
I see this quite often--additional living space added via room additions or similar modifications to the original manufactured units. This is very problematic if the modifications cannot be proven to have been completed with permits. Thus, confirmation from the local building department the additions/modifications are permitted is required.
If they are not permitted the only path forward is to obtain a licensed engineer's inspection & certification--example below-- that confirms the additions do not affect the safety, structural soundness or habitability of the manufactured home.
The cost of this engineer's certification can run into the high hundreds for minor additions and even into the thousands for more complex additions. The potential cost is hard to estimate since it would be property & location specific as well as based on the scope of the additions.
There is also the potential the additions are not certifiable and no refund of the engineer's fee would be possible.
Some additional basic criteria to be eligible for conventional or government financing include these below (other restrictions may apply depending on the property):
The manufactured home must be considered real property by being permanently affixed to the foundation as of closing.
The manufactured home cannot have been previously installed at any other site/location and then relocated to the subject property location, other than at the manufacturer or dealer lot as a new unit. (no second moves)
The manufactured home must have been built on or after June 15, 1976.
The manufactured home CANNOT be a 2-4 unit property.
Subordinate financing is NOT permitted. (no seller carryback or piggyback loan)
Loan to value on conventional primary residence purchase can't exceed 95%
Second/vacation homes maximum LTV is 90%
Investment property is not eligible for financing
Homes in mobile home parks are not eligible. Homes in approved condo projects may be eligible under certain conditions
FHA maximum LTV is the standard 96.5%
VA will allow zero down--however many VA lenders will require a down payment on a manufactured home
USDA guaranteed loan program -only new homes purchased with the land can be financed. Typically this would be a dealer selling a home/land combo less than one year old and not previously occupied. Buying a used--over 1 year old manufactured home is not allowed in California. They are eligible in a few other "pilot program" states.