Manufactured homes and modular homes are not created equal – at least not from the perspective of a home lender. Mortgages for manufactured homes have a different set of underwriting criteria than those of modular homes. Knowing the differences can help you prepare for your next loan application and subsequent home search. Or if you’re just here for general knowledge, you can sound extra smart at parties!
Fair warning: This topic is riddled with inconsistent terminology. Depending on your home lender and loan program, the terms “manufactured” and “modular” could be used to mean different things or the same thing. This blog will treat the terms as naturally different but will acknowledge times in which the marketplace treats manufactured and modular as the same. Confused? Read on for some clarity and a better understanding of why this is such a nuanced topic.
The most notable difference between the two home types is that modular homes must ride on a truck to their final address, whereas manufactured homes are built on a chassis and could ride behind the truck. It would seem, therefore, that the two construction styles are easy to differentiate. However, this fundamental difference is not always easy to spot from the street. Modular homes are built offsite, then moved to their new address. Manufactured homes are built offsite, then moved to their new address. The difference lies in the foundation: modular homes must be permanently secured whereas manufactured homes could still have wheels underneath and could theoretically be moved to a different location.
Now that we’ve covered the fundamental difference between modular and manufactured homes, here are more similarities. Both of these home styles can be located rurally or within a neighborhood. Both were built in a factory before being transported to their current location. Neither is considered “site-built” or “stick-built.” Both have endless options regarding square footage, floor plan, and finish work. A trained appraiser will make the final call regarding whether a home should be classified as modular or manufactured for underwriting purposes.
Conventional Guidelines: Conventional loans are those backed by quasi-governmental entities like Fannie Mae and Freddie Mac. These are also called Government Sponsored Enterprises (GSE’s). The underwriting guidelines set forth by the GSE’s are generally similar. Some nuanced differences do exist, but that’s a topic for another blog. An experienced loan officer will know the differences and will apply his or her knowledge to each unique application.
For the purposes of this blog, here are the general conventional guidelines for modular and manufactured housing: For modular homes, the GSE’s defer to HUD’s guidelines. Conventional loans require that any modular home be built according to HUD’s Federal Manufactured Home Construction and Safety Standards. If state-level construction standards exist, those could be used instead. Note the difference in terminology here: That which FHA lenders call “manufactured” may be what the conventional lenders call “modular.” Conventional loan officers might also use the term “factory-built” when discussing modular homes. Conventional lenders don’t put many concrete stipulations on modular homes and generally treat them as site-built homes from an underwriting perspective. The biggest sticking point is the appraisal. A conventional underwriter will rely heavily on the appraiser’s opinion of quality when deciding whether to lend on a modular home.
Manufactured homes may be eligible for a conventional loan. Primary residences and second homes are eligible. Investment properties are not eligible for a manufactured home loan via conventional programs. Single-wide homes are usually ineligible but can be approved if the property is located in a neighborhood specifically endorsed for single-wide conventional manufactured home loans.
VA Guidelines: The United States Department of Veteran’s Affairs (VA) loan program has a specific set of underwriting criteria available only available to Unites States service members and their spouses. VA loans limit the closing costs that can be charged to the buyer and require little or no down payment. VA loans stipulate that a home must meet minimum requirements of marketability (i.e., the home cannot be in disrepair).
The VA treats manufactured and modular homes separately, and it will lend on both home types, provided certain underwriting criteria are met. For modular homes, VA underwriting follows regular home loan guidelines, which can be found here. For manufactured homes, a few extra stipulations exist. The dwelling must be used as a permanent residence and be affixed to a permanent foundation. A VA loan could also be used to purchase a lot for a manufactured home, provided the house that eventually arrives will be affixed to a permanent foundation. Manufactured homes must display their “HUD tag,” showing that they were built following government standards. VA loans for manufactured housing may have shorter terms (15 – 23 years instead of 30).
It is important to note here that not all VA lenders are required to make loans on manufactured housing, so check with your VA loan officer before beginning an application.
USDA Guidelines: The United States Department of Agriculture (USDA) loan program was created to encourage lending in rural areas. The program intends to make homeownership possible for households with low to moderate incomes. New and used modular and manufactured homes are eligible, provided that the subject property does or will sit on a permanent foundation. Manufactured homes may be single- or double-wide but a minimum of 400 square feet is required for a USDA loan.
FHA Guidelines: FHA loans are the most confusing of the lot. The Department of Housing and Urban Development (HUD), which provides Federal Housing Administration (FHA) insurance, will insure both modular and manufactured homes. Here’s where the fair warning from above comes into play: HUD calls modular, manufactured, and even mobile homes the same thing once they’ve been deemed insurable. According to HUD, all of these home types could eventually be underwritten as “manufactured.” Any non-site-built home could fall under HUD’s “manufactured” guidelines once said home has been attached to a permanent foundation. If a home is permanently attached, it may be a candidate for an FHA loan as long as the additional guidelines are met: manufactured homes must have been built after June 15, 1976. Manufactured homes must also contain 400 or more square feet of living space and must be classified as real estate and not personal property to meet FHA underwriting criteria. Of course, homes still on a chassis or homes with wheels underneath could theoretically be moved. Such dwellings are not considered real estate and are therefore ineligible for FHA loans.
In general, FHA loans have fewer restrictions than conventional loans but require that the buyer pay a monthly mortgage insurance premium to offset their risk.
Exotic or In-House Guidelines: These are loans that are directly underwritten and financed by your lender. These loans are uncommon and will depend on the lender’s own underwriting guidelines.
This blog covers a lot of ground. Modular and manufactured home loans are nuanced and complicated. This is ironic, considering the simplicity with which these dwellings are built. If you’re in the market for a modular or manufactured home loan and want to read further, try the following resources:
Fannie Mae’s Requirements Page: https://www.fanniemae.com/content/guide/selling/b/index.html
Freddie Mac’s Mortgage Products Page: https://sf.freddiemac.com/working-with-us/origination-underwriting/mortgage-products
VA Home Loan Guidelines for Manufactured Homes: https://www.valoans.com/purchase/manufactured-homes/
USDA Special Requirements for Manufactured Homes: https://www.ecfr.gov/cgi-bin/text-idx?SID=e69158544484a295991a682410a315c7&node=pt7.15.3555&rgn=div5#se7.15.3555_1208
FHA Rules for Manufactured Homes: https://www.fha.com/fha_article?id=209
Contact a Ruoff Loan Officer: https://www.ruoff.com/find-a-loan-officer
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