Property Requirements for Mobile Home Refinancing

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It might be time to consider refinancing your mobile or manufactured home if you want to keep more money in your pocket each month, pay off the loan faster or even use the equity to get rid of other debt or make a big purchase.

There are several criteria you can use to figure out if the timing for refinancing makes sense. One, if you have at least 20% equity in the home, it’s a great time to drop the private mortgage insurance (PMI) that’s been tacked on to your mortgage. This means once your mortgage is down to 80% of the home’s value, you may be able to save at least $50 or more a month. The average PMI rate is about 1% of the home’s cost.

The U.S. Mortgage Insurers group explained that borrowers who purchase a home with PMI can typically cancel it within five to seven years, thereby lowering their monthly housing bill.

Paying off the loan faster by decreasing the loan terms is another way to save money. That’s less interest you’ll wind up paying in the long run. If you have a 30-year mortgage, you may want to consider shortening it to 15 or 20 years through a refinance.

A cash-out refinance is another way to make the home’s equity work for you. You can use this money to pay down higher-interest-rate debt obligations or use it toward a large purchase. However, some experts say this isn’t a popular option because lenders place more restrictions on cash-out refinancing for mobile or manufactured homes.

While refinancing your manufactured home may be a good idea, there’s a catch. Not all of them qualify for refinancing, due to lender restrictions. The home must have been built after 1976, not have any wheels and be attached to the land. This is a hard-and-fast rule for most lenders. Even if the older mobile home has undergone renovations since that date, it’s still not compliant.

Interest-rate variations

The Manufactured Housing Institute noted that interest rates for manufactured homes vary from low Federal Housing Administration (FHA)-insured mortgage rates to higher rates arising from the age and size of the home, the loan amount, the amount of the down payment made, the term of the loan, the site location and the borrower’s credit.

This is why it’s important to note that while the terms “mobile” and “manufactured” are often used interchangeably, they are indeed different. This difference became official back in 1976 when the National Mobile Home and Safety Act (created by the U.S. Department of Housing and Urban Development, or HUD) distinguished the two as separate property types.

In a nutshell, mobile homes, also referred to as trailer homes, more commonly refer to older homes built prior to 1976. There wasn’t much oversight as to how these homes were produced, and they were most often financed with personal property loans. Manufactured homes have more rigorous building standards and are constructed in a factory, built to meet requirements set forth by HUD’s act. Don’t let the two confuse you, because they can mean different things when it comes to refinancing.

The Consumer Financial Protection Bureau (CFPB) noted that manufactured homes account for a small but important share of single-family housing in the U.S. “Though manufactured homes are commonly referred to as “mobile homes” or “trailers,” they are a specific type of factory-built housing, and most manufactured homes are never moved from their original location.”

Refinancing with Fannie Mae

Fannie Mae, which guarantees a large number of the country’s mortgages, also has specific requirements that must be met before a mobile/manufactured home is considered eligible for lending or refinancing.

Construction Standards. The home needs to be in compliance with the 1976 Federal Manufactured Home Construction and Safety Standards.

Proof. An HUD Data Plate and certification papers should be present on the home. This plate includes information such as the name of the manufacturer and trade or model number as well as a list of factory-installed equipment.

First site. The unit must have come new directly from the dealer’s lot. It cannot have been installed or occupied at any other site or location.

Real property. It must be a one-unit home and legally classified as real property, not personal property.

No wheels. The home must look like site-built housing. This means it cannot have a towing hitch, wheels or axles attached to it.

Land ownership. The borrower must own the land the home is situated on. However, if it’s part of a co-op, both the land and home must be owned by the co-op. If it’s a condo, the land and the home, including those located on a leasehold estate, must be subject to the condo regime.

Size. Single-wide homes should be a minimum of 12 feet wide and have a minimum of 600 square feet of gross living area.

Site-ready. The site preparation for the home should be complete.

Foundation. The home must be attached to a permanent foundation system. That system should be appropriate for the site’s soil conditions and up to local and state codes.

Utilities. There should be a permanent connection to a septic tank or sewage system as well as other utilities. These must be in line with local and state requirements.

Maintained streets. If the home does not sit on a publicly dedicated and maintained street, then it needs to be situated on a street that is owned or maintained by the community or privately. There should also be access for vehicles.

No partial repairs. Mortgages secured by existing manufactured homes that have incomplete items like a partially completed renovation project or defects that compromise safety and soundness are not eligible for purchase until the work is completed.

Modification approval. If the home had an additional structure added to it, such as another room or any other structural modification, there should have been a state inspection to ensure requirements were met.

Lenders will often have their own refinance requirements as well, which can range from minimum credit scores to the condition of the home.

Other ways to refinance a mobile/manufactured home

There are three types of loans available for refinancing your manufactured home, so be sure to explore the intricacies of each to determine which works best for you. The Manufactured Housing Institute reminds that the rules for financing a manufactured home may be different from those for site-built housing. The trade group noted that, again, this largely depends on whether you own the land or will be renting, and where the home will be placed.

Conventional Loan

A conventional loan can be used to refinance a manufactured home as long as the borrower owns the land the home is situated on. If you have a minimum of 5% equity in your home, then up to 95% of the home’s value can be refinanced with a conventional mortgage. If the home is a secondary residence, then that number drops to 90%. With a conventional loan refinance, you need a minimum credit score of 640.

FHA Loan

An FHA loan is good for manufactured homes that adhere to the HUD Code requirements and are secured onto a permanent foundation. But Mobile Home Living, a website resource for mobile home remodeling and decorating ideas, said while there may be a lot of hoops to jump through, using a government-backed program like the FHA loan will likely save you thousands of dollars versus using private manufactured-home dealer financing.

Under its Title I program, FHA-approved lenders make loans from their own funds to eligible borrowers to finance the purchase or refinance of a manufactured home and/or lot. The agency insures the lender against loss if the borrower defaults.

Borrowers can refinance up to 97.75% of the manufactured home’s value and the borrower’s credit score should be a minimum of 580. The home should be at least 400 square feet, and there’s a 1.75% refinance fee that can be bundled into the loan.

VA Loan

Veterans and military service members can take advantage of a VA loan to refinance their manufactured home. In this case, borrowers can refinance up to 90% of their home’s value. The home must be anchored to a permanent foundation, but unlike with other loans, the home can be moveable under a VA loan. There’s also an upfront 1% funding fee on manufactured-home refinancing through the VA.

Property ownership requirements

It’s worth repeating that before attempting to refinance your manufactured home, make sure it meets the property ownership requirements. This means that the borrowers must not only own the actual unit but also the land on which the home sits. That is what gives it real property status versus personal property.

The Urban Institute, a Washington, D.C. think tank, noted that manufactured homes don’t have the same price appreciation as site-built homes. According to the institute, “Studies that compare the appreciation of manufactured housing units on the homeowner’s land with the appreciation of site-built homes have mixed results. Some show similar appreciation, and others show slightly lower appreciation. Lower appreciation for manufactured housing may be because of the lack of financing options available for older manufactured homes, which affects resale value.” But they expect an uptick in the number of manufactured homes being produced, and view them as an answer to home affordability issues.

Certifications associated with manufactured homes ensure that the home was built under the property standards. All manufactured homes built after June 15, 1976, are required to have one or more label(s) attached to them, as the Fannie Mae lending standards outline:

A manufactured home HUD label. If the certification label (also known as an HUD tag) is missing from a manufactured home, HUD won’t reissue one. However, the agency can issue a Letter of Label Verification for units for which it can locate the necessary historical information.

A data plate/compliance certificate. This data plate is a paper label affixed inside the home that’s the size of a standard sheet of paper (8.5” x 11”). The data plate can be found in a kitchen cabinet, an electrical panel or a bedroom closet. It also has a map of the United States on it to inform the owner of the Wind Zone, Snow Load and Roof Load capabilities of the home. The data plate will contain the following information:

(a) The name and address of the manufacturing plant at which the manufactured home was assembled; (b) The serial number and model designation of the unit, and the date the unit was manufactured; (c) The statement: This manufactured home is designed to comply with the Federal Manufactured Home Construction and Safety Standards in force at the time of manufacture; (d) A list of the certification label(s) number(s) that are affixed to each transportable manufactured section under §3280.8.

Other lender requirements

In order to qualify for a mobile or manufactured home refinance, lenders will want to make sure that your credit history and debt-to-income (DTI) ratio are up to par. While it can vary by lender, borrowers should generally have a minimum credit score of 500 for an FHA loan with at least 10% equity, 640 for a conventional loan and 660 for a VA loan.

A DTI ratio of 43% or below is also required for refinancing, as well as proof of income.

Bottom line

Lenders will often have a mortgage financing checklist that will apply to most types of manufactured housing loans to help you through the process. Refinancing your mobile or manufactured home can be a great way to save some cash or pay down debt faster.

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