How Does Equity Work in a Manufactured Home?

By Ashley Wirgau on October, 8 2020
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Ashley Wirgau

Understanding how equity builds within a given property is an essential lesson for any homeowner, but it is especially important for those living within a manufactured home. These portable structures do not always hold value in the same way a traditional property can. 

So, comprehending the ins and outs of the mobile market is a huge help for those working to build equity within their own manufactured residence. To start, let’s explore some basic questions that will begin to paint a picture of the equity potential in your manufactured home sweet home.

Is Your Interest Rate Above Average?

When securing financing for a manufactured house, borrowers are often met with significantly higher interest rates than those shopping for a traditional property. Because of this, manufactured homes often build equity at a slower pace as more of each monthly payment is dedicated to paying off the accumulating interest. Unlike a stick-built home, banks tend to finance manufactured residences like an automobile instead of real estate as these properties are viewed as being higher risk for the lender. Thus, a higher interest rate is attached to help offset the potential for default.

One way to limit this additional expense is to make a larger down payment initially, hence lowering your total payoff amount. Should you already be multiple payments in to the mortgage, you could, instead, benefit from checking out Ruoff’s refinancing options. We might just be able to help get your payment to a more manageable amount and, consequently, push the equity in your home up where it belongs.

Just How Mobile is Your Home Exactly?

It may be called a “mobile home,” but just how mobile is it really? This one factor can make a big impact on the house’s equity potential. Manufactured homes that are permanently affixed to land owned by the homeowner tend to appreciate in value much like a traditional build would. For example, units attached to a permanent foundation, concrete slab or basement are those most likely to build equity similarly to a traditional home. However, those that are located on land that is leased, even units that are permanently attached to said land, tend not to follow this pattern.

Moreover, manufactured homes that are easily picked up and moved to a new location seldom accrue value at all. Instead, these portable kinds of structures depreciate much like a vehicle or camper trailer would over time. They are viewed by appraisers and banks alike as closer to personal property than actual property, so the best thing you can do as an owner of such a residence is to remove all doubt that your house could find another home.

Does Size Matter to You?

…because it can to the bank. When it comes to mobile home units, size really does matter. Single wide homes (typically landing somewhere under 1,000 square feet) might not meet minimum sizing requirements for any kind of home equity loan. Homeowners interested in securing future financing of this type should consider upgrading to a larger mobile unit on the front end to ensure available lines of credit down the road.

It should also be noted that many lenders exempt manufactured homes from being included as collateral for any lines of credit, judging these types of structures to be a less sound investment for the bank. Again, size really only matters if you are concerned with building equity within the house in order to someday borrow against it, although an argument could be made that potential future buyers would also find value in a larger residence, so choosing the double-wide option might just put you ahead either way.

Overall, when it comes to manufactured homes – yes, equity does tend to build at a reduced rate given multiple factors. These variables include potentially higher interest rates, the question of permanency, land ownership versus leased lots, and total square footage of the home itself. But like properties everywhere, a manufactured home’s equity can often be influenced by external forces. The key to making those forces work for you and your particular manufactured home is understanding which ones can be addressed before you ever even make that first payment.