Mobile homes are cheaper than traditional homes and offer flexibility, making them an attractive option in today’s housing landscape. These prefabricated homes cost around $75,000 on average, but financing mobile homes can be challenging due to mortgage and property limitations.
In this guide, we will review the pros and cons of using a personal loan for a manufactured home and what essentials you should know to make informed financial decisions.
Mobile home basics
You might have heard the terms mobile homes, manufactured homes, and modular homes used interchangeably. All three are typically cheaper than single-family, traditional properties. The distinctions are:
Mobile home: A prefabricated structure that is built in a factory and attached permanently to a chassis (a special structural framework).
Manufactured home: Manufactured housing is prefabricated and assembled in a factory, just like a mobile home. Unlike mobile homes, manufactured homes adhere to strict building codes set by the U.S. Department of Housing and Urban Development (HUD).
Modular home: Different parts of modular homes are built in different factories. They are transported to the building site, where the modular home will be assembled.
For those thinking about buying a manufactured home, here are the common benefits.
Mobile homes can be tens if not hundreds of thousands cheaper to purchase than a conventional, single-family, site-built property. This affordability makes mobile homes stand out as an appealing option for those with tighter budgets.
If you choose a manufactured home, you can opt to relocate later down the line without losing your property. Mobile homes are movable, offering unique freedom and versatility to homeowners and families.
Mobile homes are usually more environmentally friendly than site-built homes. Homes manufactured and/or assembled in factories are generally more efficient, resulting in lower carbon footprints.
What are the typical costs of setting up a mobile home?
- Buying the mobile home: The cost will vary based on the quality, size, age, and features of the mobile home.
- Preparing the building site: The building site needs to be properly prepared for safety. Common steps include setting the foundation, connecting utilities, and landscaping the area.
- Transporting the mobile home: This can involve paying for crane services.
- Permits: You might need to pay certain fees and obtain permits so that you meet the local regulations.
- Maintenance and repairs: Like with traditional homes, you can expect to pay for regular maintenance and repairs to upkeep your mobile home.
Challenges in financing mobile homes
Mortgages for mobile homes are different from traditional mortgages. It’s often harder to receive mortgages for your manufactured home because it doesn’t meet the mortgage lender’s eligibility requirements. In addition, borrowers need better credit and income qualifications for mobile home loans.
Perceptions of mobile homes
Depending on where you live, manufactured homes may not be considered real property. This makes it harder to obtain financing, and the taxable status might differ as well. You might need to go through a process to convert your manufactured home into “real property”.
In addition, there is still a stigma surrounding mobile homes, with some people believing that they are not as legitimate or real as traditional homes. This can make it a challenge to be approved for financing.
Mobile homes may depreciate over time. This can make it more difficult to decide whether it is worth it to take out a personal loan to buy a property that will depreciate in value. Before signing a loan agreement, make sure that you are aware of the current value and expected depreciation of your desired mobile home. That way, you can gauge whether buying the home using a loan is optimal at the moment.
Personal loans as a financing alternative
When you take out a personal loan, you will receive a lump sum of funds directly disbursed into your bank account. This money can be freely used for a variety of needs, such as buying a mobile home or paying off debt. Over the life of the loan, you will be expected to make regular loan payments, which include a portion of the principal loan amount plus interest.
Here are the main advantages of leveraging a personal loan to finance a mobile home.
Accessible loan approval process
Personal loan applications can be made online or at an in-person branch of the loan provider. The process is relatively simple and quick. To hasten the process, make sure you have key information and documentation on you, such as:
- Your identification documents
- Your income (e.g. paystubs)
- Tax returns and bank statements
Fast disbursement of funds
Speedy funding is a great advantage of personal loans. Some lenders even grant same-day loans to those who urgently need funds. Just be mindful and make sure you review the loan terms carefully so that you understand the loan terms and have adequate repayment capability.
Loan funds versatility
A personal loan is more versatile than other financing methods like a mortgage. There are usually only a few limitations to how you can use the funds.
Here are a few common exceptions where you cannot use personal loans unless the lender specifically gives permission.
- Down payment for a house
- College tuition
Unsecured by collateral
Collateral is the asset you offer to back a secured loan. If you don’t want to risk assets as collateral, you can benefit from an unsecured personal loan. While the interest rate may be higher with an unsecured personal loan, not risking valuable assets such as your mobile home is worth it for many borrowers.
No need for home equity
Home equity loans can be extremely inconvenient and inaccessible to those who are looking to buy a manufactured home. They require you to borrow against home equity you have built on property you own. However, personal loans do not have such a requirement. Lenders will instead look at factors such as your financial stability and creditworthiness to determine whether they should grant you the loan.
What factors do lenders consider during the loan approval process?
While exact criteria vary depending on your lender of choice, here are the main factors that lenders take into account when reviewing your loan application.
- If you have a high credit score
- Whether you have defaulted on a loan before
- What is your main purpose for borrowing the loan
- Your source of income
- Your employment stability
If you’re having trouble being approved for a suitable loan, try raising your credit score before applying again.
Pros of using personal loans for mobile home purchases
There are many ways you can benefit from using a personal loan to buy a manufactured home. Here are the main advantages.
Quicker home purchase
For some people, a fast home purchase is necessary due to their living conditions. If you need swift access to funds, you might benefit from a personal loan.
Flexible and clear repayment structures
Personal loans typically come with clear, well-structured repayment terms. You can even negotiate different loan tenures and repayment terms to obtain a schedule that works best for you.
Ability to cover additional mobile home-related costs
One major advantage of taking out a personal loan as opposed to a purpose-specific loan is that you can use any remaining loan funds for other needs. If you want to buy home accessories, furnishing, and other products, you can also use the personal loan for those expenses.
Avoid the complexities of traditional mobile home loans
Traditional mobile home loans may come with various eligibility requirements and restrictions, making them more complex than personal loans. If you want a more simplified borrowing process, personal loans are usually the preferable financing method.
Aspects to reflect on before taking a personal loan for a mobile home
Of course, it is a good idea to review your situation and goals before taking out a loan. Here are several key points to take into account.
Total cost of the mobile home
Knowing the total cost of the purchase price, setup, utilities, and other associated prices of the mobile home can ensure you take out a suitable loan amount.
Future financial circumstances
After moving into a mobile home, your expected expenditures and budget may change. Maintenance, permits, and repair fees can affect your repayment capacity after you’ve moved into the manufactured home.
With mobile homes, it is also vital to think about whether you might relocate. Relocation can significantly affect your financial stability, income, and property.
Make sure you consider your future financial circumstances, such as a different income or cost of living.
Total cost of borrowing
Personal loans aren’t free. The cost of borrowing includes accrued interest and various loan fees. Common costs of taking out a personal loan include:
- The interest payable over the life of the loan
- Prepayment penalties if you repay the loan early
- Processing and underwriting fees
- Origination fees
- Late fees
Make sure you are well aware of the annual percentage rate (APR) and how much interest is expected to accumulate over your loan tenure. You can use an online calculator to help determine the total cost of borrowing of your loan.
Compare different lenders
Different lenders have their own terms, conditions, and advantages. Before deciding on a lender, try to compare rates and repayment terms among available lenders to find the one that works best for you.
Having an active loan can either increase or decrease your credit score. The effect depends on whether you can well manage your debt repayment. If you regularly pay off the loan installments without being late, you can establish good credit and show that you are a reliable borrower. On the other hand, defaulting on the loan or missing payments can hurt your credit score.
Other financing avenues for mobile homes
If you would prefer other financing methods, here are alternatives to consider.
Chattel loans for mobile homes
A chattel mortgage can be specifically tailored for financing mobile homes. The term “chattel” refers to the movable property.
While chattel loans can be more convenient to obtain if you’re buying a mobile home, their terms might be less favorable and flexible compared to personal loans. Defaulting on the loan can result in the lender seizing your mobile home.
Because of the risks associated with chattel loans, the potentially lower interest rates may not be worth it.
FHA or VA loans for mobile homes
The Federal Housing Administration (FHA) can help you procure a manufactured home loan.
If you are an eligible individual, the Veteran Affairs (VA) can also help you obtain a home loan that may be used for mobile and manufactured homes.
Mobile home dealership financing methods
Your local mobile home dealer might offer direct financing methods so that you can afford the home you want.
Home equity loans and lines of credit
If you’re a homeowner who wants to pursue mobile home living instead, you might want to take out a home equity loan. This allows you to borrow against your existing home equity.
For those who want to buy a mobile home, personal loans can be a valuable financing strategy. Here are the main reasons to take out a personal loan for mobile homes:
- You can quickly fund your mobile home purchase so you can continue with setting up your new home
- Leftover loan funds can be used for other purposes
- No need for home equity or collateral
- Can be easier to obtain than a traditional mobile home loan or mortgage
By making informed financial planning and borrowing decisions, you can increase your chances of favorable loan outcomes.
Resources and further reading
Since personal loans for mobile homes typically have large loan amounts, it’s even more important that you find a suitable loan provider. The lender should be credible and offer fair loan terms that align with your goals and needs.
Here are a few reputable loan providers to get you started with finding the optimal personal loan.
Personal Loans Company Reviews
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