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Looking for mobile home loans? Is your 575 credit score a fit?

Manufactured home

Manufactured, mobile, or modular housing carry a stigma related to poverty and lower-income households in American society. But for many Americans, living in a mobile home park is a choice due to its affordability. You can get the same sense of community as a suburban neighborhood at a fraction of the usual cost.

Mobile homes can be up to 20% less expensive than regular housing, and with this choice, you can more easily move your address in the future without having to buy another home.

No matter how much cheaper housing can be for a mobile home, though, you will still need a lot of cash if you were to pay for it upfront. So it’s good to know that the same government-backed and traditional loans can be availed in case you need assistance to gain ownership.

The question is, will your credit score qualify you for any of these loan programs?

If you want to find out how to get financing for modular or manufactured homes, this article is for you. We hope to point you to a type of loan that will give you the best loan terms for your situation.

Modular or Manufactured Home?

Before we discuss home loans, we need to distinguish if we are talking about a modular home or a manufactured one. Outside, these homes may not look any different, but legally some details set them apart.

Whether you have a modular or manufactured home can affect what kind of home loan you can get.

Manufactured Homes

When it comes to picturing the typical manufactured or mobile home, they are essentially the same. They may or may not have wheels if the wheels have been removed after setup. But, ideally, they can still be moved to a different location because the foundational steel chassis created is not meant to last.

However, nowadays, we more often use the term manufactured home to refer to this kind of housing. Due to the National Manufactured Housing Construction and Safety Standards Act of 1974, all of these homes built before June 15, 1976, are considered non-compliant to the Department of Housing and Urban Development (HUD) standards and must be referred to as mobile homes. Therefore, today, manufactured homes must fall in line with the federal HUD codes.

Modular Homes

Just like manufactured homes, modular homes are also factory-built homes that are shipped to their owner’s location to be set up. But unlike manufactured homes, the foundation is more permanent and can function as in a traditional home. You can even add a basement or a crawlspace.

Instead of complying with the HUD guidelines, modular homes must meet the state, local, and regional building codes for site-built housing.

Compared to a manufactured home, a modular home is also considered more durable, which is why its value can vary according to the growth of the real estate market, while a manufactured home’s value will most likely depreciate over time. Therefore, modular homes are more of an asset; manufactured homes are more of a liability. It can be much harder to get approved for financing for a manufactured home than a modular home.

Mobile Home Loans with 575 Credit Score

Chattel Mortgage

With a traditional type of mortgage, you use home and land as collateral in case of loan default. However, for mobile homes, this can’t always apply because many people who use this kind of housing typically rent space or do not own the land. If this is the case for the homeowner, they can avail of what’s called a chattel mortgage.

You can apply for a chattel loan as long as the money being borrowed is needed for movable property. Sometimes, it is even approved to purchase heavy construction or farm equipment. It can even be availed for a boat. If the borrower owns the land, it will not be affected in case of default as long as the ground is not under lien.

Due to the riskier nature of this type of loan, a chattel mortgage can be more expensive than a traditional home loan. There can be higher monthly payments due to the interest rate for chattel loans, and the down payment can go as high as 30 percent, depending on your credit history. However, you can gain ownership of your property much faster on the upside because the loan terms tend to be shorter than traditional mortgages at only 10 to 20 years.

Government-Backed Loans

Another option you can consider is government-backed mortgages. There are different types of this as well, and they each have their requirements. However, apart from chattel mortgages, this route is that you need to tie the land to the mortgage. So if you are only renting at a park, this is out of the question. Likewise, if you plan on moving house to another location, this is also not allowed.

Regardless of whether you have a modular or manufactured home, the foundation must be converted into a more permanent one. Your manufactured or modular home must also go through the same rigorous inspections as in traditionally-built houses before it can be approved for a mortgage. In particular, the foundation will be checked to make sure it complies with loan requirements.

Since you’re getting a home loan insured by the federal government, it requires that you use this house as your primary residence for at least one year. You can only get one mortgage for this house at a time, even if you qualify for different types.

These are the government-backed loan programs that might be able to help you out. See if you qualify.

1 – FHA Loan

Federal Housing Administration loans are usually referred to as first-time homebuyer mortgages, but first-time homebuyers are not the only ones who can avail of this loan. It’s meant for borrowers who can’t secure home financing through conventional loan options.

As long as you have a minimum credit score of 500 and can make a 10% down payment on this mortgage, you are eligible. Due to the lower minimum credit score needed, the FHA loan is considerably attainable for many Americans.

In case you need a lower down payment amount, you’ll need to earn a few more points in your credit score because a 580 rating is necessary so that you can lower that down payment to just 3.5 percent.

On the upside, the FHA allows borrowers to get help from down payment assistance programs to secure money down. You can also accept gifted cash from relatives or friends who want to help you get this mortgage. So you don’t have to pull all of the money out of pocket.

2 – USDA Loan

The U.S. Department of Agriculture also backs a type of mortgage that is exclusive to rural areas. They have their definition of rural, though, so you can still find out if this is an option.

It is desirable to borrowers, mainly because there is no minimum down payment required. However, while getting a regular USDA loan is already tricky, it is even more challenging to find a lender who will approve a USDA loan for a manufactured or modular home.

For one thing, you can’t get a USDA loan for an existing home of this kind unless the construction and setup had previously been financed through USDA. So while this is a possible scenario, it is very rare.

The unit itself also needs to have been constructed within the last 12 months by a government-approved contractor.

To know if your preferred location is eligible for this loan, you can visit this page and fill in your information.

3 – VA Loan

Finally, manufactured and modular homes can also qualify for VA loan financing if a service member or veteran.

Just like other loans guaranteed by the Department of Veterans Affairs, the fees you’ll have to pay can be very minimal, according to your entitlement. There is also no down payment required as in USDA loans. You need to make sure that the home meets the VA loan housing standards.

Notes

Minimum Credit Score

Unlike FHA loans, USDA and VA loans don’t prescribe minimum credit score requirements regardless of whether you’re buying a mobile or permanent home. However, as long as mortgages are concerned, lenders may have their demands that you will need to prepare for.

Ideally, with a 575 credit score, you should qualify for an FHA loan, provided you meet other stipulations as in employment and debt-to-income ratio. We want to put this disclaimer, though, because the reality is securing financing can be much more challenging for a mobile home due to the added risk of this property. The same goes for USDA and VA loans.

Although they are authorized to grant these federal-insured loans, lenders are not tasked to qualify more borrowers. A Good FICO Score starts at 670. A 575 credit score still falls under bad credit, so if you can afford to delay the purchase until you raise your score a bit higher, it will work to your advantage.

Land Ownership

Many Americans choose to live in mobile homes for the option of taking off to another location at any time in the future.

If you finance your mobile home using a government-backed mortgage, though, you will need to own the land where you’ll set up the house. This land will become part of the collateral in case of a foreclosure, and if you own it, you’ll have to pay the corresponding real estate tax.

On the bright side, modular home or not, this land’s value can appreciate, and you’ll be gaining an additional asset.

Permanent Foundation

Lastly, if you buy or have bought a manufactured home, you will need to make the foundation more substantial and permanent because this is a non-negotiable requirement for FHA, USDA, and VA loans.

This can become an added cost out of pocket or to your mortgage. Either way, it’s a further expense.

Conclusion

Indeed, you can have several mortgage options to finance your mobile home with a 575 credit score. As long as you are buying or building a manufactured home after 1975, you can apply for any loans we have mentioned above. You have to ask yourself if you also want to put a lien on the land because if not, you can only secure a chattel mortgage.

Considering the higher expense of a mobile home loan, it may defeat one of the purposes of choosing this housing: affordability. In addition, your employees will need to be very stable for the next 10 to 20 years because the monthly amortization is more expensive.

You have to determine if you are looking to stay in this home for at least this length of period, keeping in mind that after 20 years, a manufactured home may or may not keep any of its value. So you might only be paying for liability rather than an asset.

Whatever you decide, there are lenders and programs you can reach out for this kind of scenario! You can also get in touch with us if you need further information to guide you in the right direction. Good luck!

 

Photos from Pixabay

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