As the demand for affordable and quality homes increases, manufactured homes continue to be a viable alternative to site-built homes. According to a Fannie Mae report, 9% of single-family starter homes are manufactured homes. Furthermore, over 80,000 manufactured homes are produced yearly, while over 22 million people now live in manufactured homes across the US.
With this sharp increase in the adoption rate of manufactured homes, the question is: Is buying a manufactured home an excellent investment? This article will explain everything you need to know about manufactured homes, including components and financing options.
What is a Manufactured Home?
A manufactured home is a factory-made structure built on a chassis (frame with wheels). After construction, the home is transported to the owner’s preferred location where it’s attached to either a pier, Mansory crawl space, or a concrete foundation. For factory-built homes to be called “manufactured homes,” they must have a minimum size of 320 square feet and must be HUD certified, i.e., they must comply with the federal HUD building code.
Before July 15, 1976, manufactured homes were usually referred to as mobile homes. During this period, they are known as weak, substandard structures on wheels, and serve as a temporary living space for job seekers. But after the HUD building code was released in 1976, a new phase of factory-constructed homes that are structurally strong, aesthetically pleasing, efficient, affordable, and flexible emerged.
Related: How to Get Started in Mobile Home Investing
What are the Components of a Manufactured Home?
Manufactured homes are built off-site and shipped/transported to their permanent destination. A closer look at the structure of manufactured homes shows they are comprised of two essential components — the land and the building itself. Below is a further explanation of the two components.
Land
Unlike the conventional site-built homes, manufactured homes offer you much flexibility to buy either the land or the building, or both. That means when you decide to buy a manufactured home, you should have a site in mind for your factory-built home. And there are two options — private land and a land-leased manufactured home community.
- Private land is a landed property you either currently own or planning to buy. If you are planning to purchase land for your home, here are some factors to consider ensuring the space is suitable for the purpose:
- Accessibility
- Land permit and Zoning law
- availability of essential home services (like water, sewer, electricity, gas, and telephone services)
- Deed Restriction on home design, property type, foundation design, roof pitch, and so on.
- The land-leased manufactured home community is an open space designed for a manufactured home. It’s like a rental property, but here, you own the building while leasing the land. This option is suitable for homeowners who currently don’t have private land and can’t afford to buy.
Built Property
Now that you’ve secured a place to locate your manufactured home, the next step is to get yourself a custom factory-built property. For this, you’d need to work with a manufactured home dealer, the construction team members, or an agent. That’s where you’d describe what you want, pay for the construction project, and wait for the team to deliver your affordable living space.
What are your Financing Options?
Like other conventional home buying processes, buying a manufactured home also requires financing. Note that the type of loan you qualify for depends on how your property is titled — is it a real or personal property? So before making your final purchase decision, what financing options do you qualify for? Here are the different options currently available to manufactured home buyers.
Related: A Guide to Creative Financing for Real Estate Investors
Government-Backed Mortgages
These loan types usually require low down payment, have low rates, and are less stringent. They are appropriate for financing property only. Below are different federal-backed mortgages available to manufactured home buyers.
- FHA Mortgage is a 15-30 years fixed-rate mortgage insured by the Federal Housing Administration. For your manufactured home to qualify for this mortgage type, it must occupy a space not less than 400square feet, must be built after July 15, 1976, and must be HUD-certified. Other requirements include:
- Minimum down payment of 3.5%
- A credit score of not less than 500
- Classified as real property. i.e., must be permanently attached to the land.
- USDA Mortgage is a US Department of Agriculture-insured manufactured mortgage option to support rural development. So if your prospective property is in a rural area, check out this option. USDA mortgages have similar requirements to the FHA-backed mortgage, but with a slight difference. And these are:
- A minimum credit score of 650
- Your income must not exceed 115% of the median income for your area
- VA Mortgage is primarily for veterans. This mortgage financing option can finance both land and home and refinance manufactured homes. To qualify for this mortgage type, you must:
- Be a Veteran
- Make sure your home meets local and veteran building codes
- Provide a minimum of 5% down payment
- Provide proof that your property is permanently attached to the land
Conventional Mortgage
Conventional mortgages are also available for manufactured homes but require a more stringent rule than government-backed mortgages. To qualify for this mortgage financing, your home must be real property, i.e., it must have a permanent foundation. Also, its size must not be less than 400sq ft. Here are different conventional mortgage options available.
- Freddie Mac ChoiceHome Program: is a conventional home loan program for factory-built HUD-standard homes. It requires a minimum down payment of 3%. To qualify for this mortgage, the manufactured home must contain site-built home features like driveway, sidewalk, carport, and so on.
- Fannie Mae MH Advantage is another conventional loan option to finance manufactured homes that blend into traditional neighborhoods. The minimum down payment and credit score to qualify is 3.5% and 620, respectively. Moreover, your home must be affixed with MH Advantage by the manufacturer.
Chattel Mortgage Option
The chattel loan is a financing option for movable personal properties like boats, planes, expensive vehicles, and manufactured homes that don’t qualify as real properties. Unlike conventional mortgages secured by a lien on a fixed property, a chattel loan is secured by a movable property, i.e., the lender has an ownership right in the chattel until the borrower pays off the mortgage.
Chattel mortgages are short term with a lower loan amount. Also, the interest rate is higher than that of a traditional mortgage. So, if your property doesn’t qualify as real property, probably, because it’s on rented land, the chattel mortgage option is an alternative.
Owner Financing
Owner financing is when the seller pays for the property on behalf of the buyer, and it’s usually with an agreement that the buyer will pay in parts. This financing option differs from others previously mentioned in that it’s a mutual agreement between both parties (the seller and the buyer), and it eliminates intermediaries like the banks and mortgage lenders.
So if you’re buying a manufactured home from a dealership or a private seller, you can also ask if the seller offers a financing option. However, if owner financing is your option, ensure to read and understand the agreement before signing on the dotted lines. This is to avoid problems later on.
Why Should You Invest in a Manufactured Home?
In the previous section, newer designs and construction of manufactured homes are reliable. But despite this, most homebuyers are still skeptical about buying manufactured homes, probably because of the poor reputations before 1976. In this section, we’ll discuss the factors that make manufactured homes a better investment alternative to site-built homes.
Structurally Strong
The general misconception about manufactured homes is that it isn’t as strong as site-built property — and that’s unfounded. Although it’s constructed in a factory, manufactured homes are regulated by the HUD building codes — the only federally mandated codes that ever exist. So, it’s required to pass a stringent certification process and be affixed with a red seal before it’s shipped.
Affordable
The average cost per square foot of a manufactured home is about $49 compared to $107 for single-family site-built homes. This low cost of construction has, for a long time, made manufactured homes a preferred alternative to site-built properties. A manufactured housing institute’s report showed that the price of a manufactured home is about 60% lower than that of a single-family home. And that this affordable housing option has created homes for some 22 million Americans with an average household income of about $30,000.
Highly Customizable
Apart from being beautifully designed, manufactured homes are customizable. So, instead of buying generally designed factory-built homes, you can make your dreams a reality by adding features that resonate with your personality. You can change the exterior, install a marble countertop, adjust the roofline, pick your favorite finishing, and even add more units whenever you like. With manufactured homes, you’re your limitation.
Is Buying a Manufactured Home a Good Investment?
There is no definite answer to the question. Your decision depends on your preference and other factors like the location, financing, and the intended purpose. With that being said, if you choose to buy a manufactured home, check out Mashvisor’s property finder. The real estate software will eliminate the hassle that comes with property searches. The tool employs AI and advanced algorithms to identify profitable investments that match your criteria and goals.
To get access to our real estate investment tools, click here to sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.