Can I get a mortgage on a prefabricated house?
Prefabricated homes provide affordable housing, but financing can be difficult.
You may need to convert the manufactured home from personal property to "real estate" in order to obtain a mortgage. You may also have to deal with issues such as titling and paying your property taxes.
If you are in need of a mortgage loan when buying any of these homes, do your research first and make sure you understand what it is about. Requirements may vary based on the type, age and location of the home.
Check Your Mortgage Eligibility (Jan 11, 2021)
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Mobile vs. modular vs. prefabricated houses
It is easy to confuse the terms "prefabricated house", "modular house" and "mobile home". However, it is important to know the difference when trying to get a mortgage.
The manufactured case consists of several components that are manufactured outside the factory in a factory. Later, these components will be assembled on much of your choice using a rectangular "chassis" (metal frame) instead of a permanent foundation.
The house is usually installed permanently in this place, and the land on which the manufactured house is located can be either:
Owned by the buyer, making it “real estate” and therefore eligible for mortgage financing. Placed on leased property, making the house “personal property” which is not eligible for mortgage financing
Modular houses are similar to prefabricated houses in that they are partially built in factories.
In contrast to prefabricated houses, however, modular houses are assembled on site, connected to a permanent foundation and automatically referred to as "real estate". This means that they are usually eligible for home loans.
In comparison, the term “mobile home” refers to a house that was also built in the factory but was never permanently installed in one location. These houses are considered personal property, ”says Christopher Guerin, Vice President of Origination at eLEND.
"A house on leased land is not classified as real estate or real estate because the buyer would not own both the land and the house," explains Guerin.
"This is no different than taking out a loan for a car. In this case, the lien is tied to the vehicle, but not to the land under it."
Both mobile homes and prefabricated homes are typically sold direct to the buyer / homeowner by a dealer or factory, says lawyer and broker Bruce Ailion.
“The buyer may have an upfront plot of land on which to build a prefabricated house. The seller usually helps find the contractor who can place a panel to attach the house to. If the buyer doesn't have a plot of land, the seller can likely suggest where to find one, ”explains Ailion.
Requirements for financing a prefabricated house
To qualify for prefabricated home mortgage financing, most lenders will need the following:
On land you own. Fixed on a permanent foundation that complies with the HUD code: building standards established by the Ministry of Housing and Urban Development. HUD Compliant: It should have a HUD label (metal plate certification label outside the house) and a nameplate (paper label found inside the house) Titled as real estate (real estate) Built after June 15, 1976 Without axles, wheels or trailer hitch A minimum size (e.g. 400 square feet)
Note that, according to Guerin, a mortgage-backed prefabricated house cannot be removed from the property on which it sits without the permission of the lender.
Check Your Mortgage Eligibility (Jan 11, 2021)
Is my home "real estate"?
Attorney Rajeh Saadeh says it is easy to determine whether or not the homes being manufactured are real estate.
“The property should be appropriately and clearly defined in the sales contract. Your lawyer should make sure of this too, so you know exactly what the seller is selling and what you are buying, ”he says.
"When it comes to real estate, it usually contains a reference to a lot and block number per tax return or a description of a surveyor."
Also, if you owned real estate, you would pay property taxes on the structure and land.
"If your prefab or mobile home is on rented property, you would pay personal property taxes instead," notes Ailion.
Still not sure if a house is real estate? You can call in an appraiser to find out.
Or, contact your local tax authority (usually the county assessor's office) and ask if the property is taxed as real estate or as vacant land.
"If the house is taxed as empty land, but the house has been installed on the land for more than 12 months, you may still be able to get a mortgage loan," adds Guerin.
“The mortgage lender will close and ask the settlement agent to update the tax records to reflect the house as real estate.
“If the house is on leased land or is on owner-funded property that is secured with an unrecorded land contract,” he continues, “it would be Not be eligible for financing as real estate. "
How to convert a prefabricated house into real estate
There are a few steps involved in converting a prefabricated house into real estate so you can get mortgage financing.
"First, you would need to get the manufacturer's certificate of origin or previous certificate of ownership if you are not the original owner of the home," says Guerin.
Next, in most states, you'd go to the Department of Motor Vehicles (DMV) and let the house "de-title". This step essentially changes the legal status of the house from a vehicle to a structure. This will allow you to re-record the land and apartment under a new title and list it as real estate.
Once the house has been secured to its foundation, you will also need to obtain an affidavit. This document confirms that the house is permanently attached to the land. If one already exists, a copy of the affidavit should be recorded in the county assessor's or county recorder's office.
"I would suggest reaching out to a settlement or title company to walk you through this process," advises Guerin.
Contact a settlement or title company to walk you through the process of converting a prefabricated home into real estate.
River City Mortgage's Raymond Brousseau says a few other things could be involved.
“Typically, a prefabricated house requires foundation certification, which must be carried out by a licensed structural engineer who must verify that the house is properly secured to a permanent foundation,” he says.
The engineer will check the foundations that lift the house off the ground and make sure they are happily tied to the ground.
The report, which was produced from the engineer's findings, averages $ 375, according to Guerin.
"Your mortgage lender can also request that a second inspection report be completed by the Institute for Building Technology and Security," notes Guerin.
If so, he says, this government organization will certify:
HUD label number Serial number or chassis number (vehicle identification number) When the house was built, the name of the manufacturer and the location of the plant Where the house was originally delivered
That second report can get you back around $ 100.
Be warned: Putting a prefabricated house on a foundation can be expensive.
“It is difficult to determine the specific cost of attaching a home to a foundation. It depends on the size of the house and the amount of work required, ”says Guerin.
"Be aware that moving the prefabricated house from its original location to a new foundation at a different location can limit your financing options."
Types of loans to finance a prefabricated house
Fortunately, there are numerous financing options available to buy or refinance a prefab home that has been converted into real estate if you qualify to do so. These include:
"Most of these loan program offerings have the same income, credit, and down payment qualifications as traditional high-rise homes," says Guerin.
According to Ailion, the application process is the same as borrowing a traditional home loan.
"Alternatively, the manufactured home seller can offer owner-occupied financing to borrowers who cannot obtain financing any other way," says Ailion.
Finally, expect potential complications in the assessment process.
“Appraisers have to find comparable houses that are listed in the multiple listing service. Newer prefabricated houses that are built and installed on land or placed on leased land may not be used when evaluating a property, ”warns Guerin.
"If you're using a real estate agent, it's a good idea to have them screen for comparable property sales when you submit an offer."
Check your mortgage eligibility
Mortgage rates are at historic lows.
If you and your new home are eligible for a mortgage, financing a prefab home at today's interest rates can be incredibly affordable.
Check your eligibility with a few different lenders to see what type of funding you might qualify for.
Check your new plan (January 11, 2021)