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Factory-built homes are one of the most affordable types of housing -- generally priced at about half the cost of new site-built homes. The purchase price, however, is not the only factor to consider in determining if you can afford a factory-built home. You must also consider the added cost of purchasing private land or leasing land if you place or buy your home in a land-leased manufactured home community. You also need to consider:
- the down payment
- interest rates
- length of loan term
- loan qualification requirements
Two types of loans are available for the factory-built homebuyer. They are:
- Personal property loan ("chattel" loan): A factory-built home purchased separately from its lot is financed as personal property. These loans, similar to those made on cars, boats and other major purchases, are a popular way to finance factory-built homes in communities or on rented or leased property.
- Requires a 10 percent minimum down payment and is financed, on average, from 15 to 30 years.
- Interest rates are usually 2 to 3 percentage points higher than those for real property loans, and can either be fixed or variable.
- It is generally easier to get approval for this type of loan because it allows for a higher debt-to-income ratio.
- It can cover both the cost of your home and lot improvements such as walkways, porches, carports and garages-especially if the community where you place your home requires such add-ons.
- Real property loan: A factory-built home purchased as a package with land may be considered real property and may be financed with the same kind of long-term mortgage as a site-built house. These loans are available only for permanently located homes.
- Requires a 5- to10-percent down payment, and is financed with a fixed-rate or adjustable mortgage over a 15 to 30-year period.
- Interest rates are generally 2 to 3 percentage points lower than for personal property loans.
- Loan requirements are often comparable to those for a site-built home loan. This means they are generally harder to obtain than a personal property loan.
- The loan usually covers both the cost of your home and lot improvements if the whole package (house plus lot improvements) "appraises out" at the selling price.
A Home Purchase Scenario
How would the two financing options-personal property vs. real property loan-play out for someone wanting to put a $49,500 factory-built home on a $20,000 piece of land? (This would include an additional $2,000 set-up fee.)
- With the traditional factory-built personal property home loan, at 11.5% interest, the homebuyer would need a minimum down payment of $7,150 and have monthly payments of $637 for 30 years.
- With the addition of a permanent foundation (an average of $6,000) and a conventional real property mortgage, at 8.5% interest, the down payment could shrink to $3,775 and the monthly payments to $566 for 30 years. Although the total home cost is higher in this scenario, the monthly payment is $71 lower.
The table below illustrates the difference between the two scenarios.
Loan Comparison Table
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Personal Property Loan |
Real Property Loan |
| Total home cost | $71,500 | $77,500 |
| Down payment | $7,150 | $3,875 |
| Interest rate | 11.5% | 8.5% |
| Loan amount | $64,350 | $73,625 |
| Monthly payment | $637.25 | $566.11 |
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Equal Housing Opportunity.