Financing a Manufactured Home

There are many things to consider when financing a manufactured home. This is particularly true for the first time home buyer. Mortgage terms, interest rates, closing costs, originator fees, the down payment, insurance, and other issues that must be thought through in order to make informed decisions.

Buying a home is the most expensive financial undertaking most people will make in their life. It only makes sense that it should be approached carefully before making a final decision.

Two of the more important things to consider when applying for a manufactured home loan are the loan terms and interest rate. These two aspects of any loan will determine how much you will pay, not only monthly but also over the life of the loan.

One thing to keep in mind is that interest rates are moving up and down everyday in conjunction with market rates. This makes locking in the lowest interest rate something of a guessing game, but since the market follows trends it’s rather easy to see which way interest rates are trending. If they are trending up then it’s a good idea to lock in; if they are trending down it can literally pay to wait until they start to go up again before locking in.

The next decision to make when financing a manufactured home is deciding what type of loan works best for your situation: A fixed rate mortgage or an adjustable rate mortgage (ARM).

For the majority of people a fixed rate mortgage is the way to go. Once the interest rate is locked in it will remain the same for the life of the loan. This means the monthly payment will always be the same making the house payment easier on the monthly budget. About the only drawback of a fixed rate when compared to an ARM is the initial interest rate at closing, with a fixed rate mortgage being slightly higher.

The ARM, or adjustable rate mortgage, has the singular advantage of having a lower initial interest rate. This can mean a lower monthly payment through the first term of the loan but since it is an adjustable rate that can change once the term is up. If interest rates go up so will the monthly payment, much to the surprise of the homeowner. About the only time an ARM makes sense is if you don’t plan on being in the home for very long, other wise stick with a fixed rate loan for the financial piece of mind it brings.

Deciding on the term, or length in years, of the loan is another important consideration. For fixed rate mortgages the two most common are 15 and 30 year terms. Many lending institutions also offer 20 and 40 year fixed rate loans.

Adjustable rate terms offer an initial fixed rate of 3,5,7 or 10 years. Once the first term is up the interest rate will adjust to whatever the current market rate is at. Depending on the terms of the loan the interest will continue to adjust at set periods of time as was agreed upon in the loan terms.

Another factor that will help determine your monthly payment and in some cases the interest rate is the size of the down payment. Most lenders want a down payment of at least 20% of the total value of the home being bought. This allows the new homeowner the opportunity to get into a home with a certain amount of equity already there and avoids the mortgage insurance for all loans that don’t meet the 20% requirement.

This doesn’t mean that you have to have a 20% down payment as many lenders will help prospective homeowners get a loan with a smaller down payment, but there can be additional fees, a higher interest rate, and the aforementioned mortgage insurance that will raise the monthly payment.

When you are getting ready to sign the final contracts be sure to read through everything carefully. There could be clauses, stipulations, and hidden fees that weren’t considered during the review process before closing. There are two clauses that you need to wary of; a balloon payment at the end of the term and any “pre-payment penalties” that may occur if the mortgage is paid off early.

Financing a manufactured home is much the same as financing a conventionally built home. The same considerations need to be made during the loan process to ensure that the mortgage fits your financial needs.