Although purchasing a modular home is typically a more financially friendly option compared to “stick-built”, in some cases such as modular homes, financing may be more difficult than traditional home financing. Understanding how modular homes and modular homes are financed will increase your odds of getting the best financing option for your home and family.
Modular Home Loans
Modular homes are often viewed in the same way as traditional homes or home building projects. Some financial institutions may offer more flexible terms than others, but when financing a modular home, the most common loan is a 30-year fixed-rate mortgage. Why? First, understand the two types of mortgages modular home financers usually offer and how the length of the mortgages is calculated.
There are two types of mortgages you could get as a modular home buyer:
- Fixed-Rate Mortgage (FRM)
- Adjustable-Rate Mortgage (ARM)
A fixed-rate mortgage is the most popular choice among homeowners. A FRM remains at the rate that was set when you first purchased your home – meaning if rates skyrocket, your wallet won’t be emptied. However – if rates drop drastically – some banks could refinance you and reduce your interest rate then. An adjustable-rate mortgage is exactly what it appears to be. Your rate will “adjust” after a set amount of time and will change annually, quarterly, etc. depending on the industry. Don’t be tricked by the low initial rate (usually below 1%). Unfortunately, if you are taking out a large loan, some banks prefer an adjustable-rate mortgage over a fixed-rate mortgage.
Modular Home Financing: Personal Property Vs Real Property
While purchasing a modular home can help achieve the “American Dream” of owning a home, acquiring modular home financing can prove difficult. Why is it sometimes more difficult to purchase this type of factory-built home? modular homes can be considered “personal” property, instead of “real” property in some cases. Personal property is a broader category, defined as anything that isn’t real property. Real property includes land and anything attached to the land that you purchase, such as a house – think “real estate”.
Since modular homes are typically considered personal property, most financing options for your new home will be using personal or “chattel” loans – usually at least a 2% higher rate than mortgage loans for traditional homes. While modular homes are able to be picked up and moved to a new location if need be, a lot of modular homeowners plan on remaining where they originally placed the home. In this case, banks may be more willing to finance the home as a mortgage because it is fixed to land that was purchased as realty. The type of foundation you choose and the type of modular home selected may impact how a bank “scores” your home.
So, What Is The Next Step?
Now that you have a little bit of background information on how banks offer loans for modular and modular homeowners, it’s time to get the ball rolling. Before you start looking at homes, know your financing options and know where you would like your modular home to be placed. If you plan on fixing the home to the lot permanently, consider purchasing the land as well. Purchasing the land gives you a better chance of acquiring a mortgage – rather than acquiring the high-interest rates associated with personal loans.
Visit several different banks and ask about their loan options on modular homes. If you aren’t quite ready to visit the bank about loans, ask your Rocky Mountain Base Camp representative for help. Running a complete credit check isn’t always necessary – and can actually decrease your credit if you ask too many representatives to do a full credit check.
Here at Rocky Mountain Base Camp, we cannot give specific home financing advice. But if you call us at 719-427-6311 or stop by one of our locations we can help you get started. Our team can work with any lender you prefer and provide a list of local lenders for you to consider.