Factory-built homes offer a high-quality, affordable path to homeownership. With modern designs, energy-efficient features, and lower costs than site-built homes, they are an attractive option for many buyers. However, securing financing for a factory-built home can be different from financing a site-built home.
Understanding the available loan options, including programs like Fannie Mae’s MH Advantage® and Freddie Mac’s CHOICEHome®, can help you make informed decisions and secure affordable financing. This step-by-step guide walks you through the process, ensuring you understand how to finance your home purchase while making the most of the resources available to you.
Step 1: Determine Your Budget
Before applying for a loan, evaluate your financial situation:
- Consider the home price, land costs (if applicable), taxes, insurance, and maintenance expenses.
- Review your credit score, as it impacts your eligibility and loan terms.
- Use online mortgage calculators to estimate your monthly payments.
- Factor in additional costs, such as home setup, foundation installation, and potential site improvements, which can significantly affect your overall expenses.
- Determine how much you can comfortably afford to spend each month on your mortgage while accounting for other financial responsibilities like student loans, car payments, and everyday living expenses.
- Next Step’s TotalHome+ Calculator allows homebuyers to estimate the monthly payments and see what a factory-built home purchase might look like for you.
Being financially prepared will help you choose the best financing option for your needs and avoid surprises down the road.
Step 2: Explore Loan Options for Factory-Built Homes
Financing a factory-built home differs from financing a site-built home. Understanding your options ensures you secure the best loan terms and avoid predatory lending practices.
Traditional Financing vs. Chattel Loans
- Chattel loans are often used for factory-built homes on leased land but come with higher interest rates and shorter loan terms.
- Mortgage loans provide lower rates and longer repayment periods but require the home to be permanently affixed to owned land.
- It’s crucial to weigh the long-term financial impact of both types of loans. While chattel loans might seem convenient, the higher interest rates can make homeownership more expensive in the long run.
The Impact of Contract Financing
A recent Pew Trusts study found that many factory-built homeowners rely on contract financing, an alternative that can come with higher risks, including limited consumer protections and high costs. This highlights the importance of exploring traditional mortgage options when possible, as they provide stronger legal protections and more predictable financial outcomes.
- Contract financing often lacks transparency, making it difficult for buyers to understand the true cost of their loans.
- Some contract financing agreements have high fees, balloon payments, or clauses that allow lenders to reclaim homes if borrowers miss payments.
- To avoid these risks, prospective homeowners should work with reputable lenders and explore government-backed and conventional mortgage options.
Government-Backed Loans
- FHA Loans: Low down payments and government-backed security.
- VA Loans: No down payment for eligible veterans and active-duty service members.
- USDA Loans: Financing for homes in eligible rural areas, often with zero down payment requirements.
- These programs can be especially beneficial for buyers who need flexible credit requirements and low down payment options.
Conventional Mortgage Options
- MH Advantage®: Offers lower down payments, competitive interest rates, and flexible terms for qualifying factory-built homes that meet specific criteria, including permanent foundations and site-built home features.
- CHOICEHome®: Provides similar benefits and applies to factory-built homes that meet HUD codes and resemble site-built homes.
- These financing options make factory-built homeownership more accessible by aligning mortgage terms with those of site-built homes.
Exploring these options can help you secure a loan that supports long-term homeownership and financial stability.
Step 3: Secure Down Payment Assistance (DPA) & Other Support
Many state and local programs provide down payment assistance (DPA) to first-time homebuyers. These programs, often run by government agencies and nonprofits, can help lower your upfront costs and make homeownership more attainable.
- DPA programs may offer grants, forgivable loans, or low-interest second mortgages to help cover the down payment.
- Some assistance programs require the completion of homebuyer education courses, which can also provide valuable insights into the homeownership process.
- Combining DPA with MH Advantage® or CHOICEHome® loans can make homeownership even more affordable by reducing the financial burden of the upfront costs.
- Next Step’s Down Payment Seeker tool can help homebuyers identify down payment assistance that can be put towards their factory-built home purchase.
Step 4: Get Pre-Approved for a Loan
Pre-approval strengthens your homebuying position and provides clarity on what you can afford. To get pre-approved:
- Gather necessary documents (income statements, credit reports, employment verification, tax returns, and bank statements).
- Compare lenders that specialize in factory-built home financing, ensuring they offer competitive rates and fair terms. Next Step’s Preferred Lenders are experts in factory-built financing and a great starting point for your lender research.
- Understand loan terms before making a final decision, including interest rates, loan duration, and potential penalties.
- Pre-approval helps you move quickly when you find a home you love, giving you an advantage over other buyers.
Step 5: Find Your Factory-Built Home
Once pre-approved, start shopping for your home:
- Work with factory-built home retailers and builders to find homes eligible for MH Advantage® and CHOICEHome®.
- Confirm that your home meets financing program requirements (HUD code compliance, permanent foundation, energy-efficient features, and design elements that align with site-built homes).
- Compare home features, warranties, and energy efficiency benefits to maximize your investment.
- Consider the long-term costs of homeownership, including utility bills, property taxes, and homeowners’ association fees if applicable.
Step 6: Finalizing the Loan & Closing on Your Home
Once you’ve selected your home, finalize your mortgage:
- Complete the loan approval process and provide the necessary paperwork.
- Budget for closing costs and fees, which can include appraisal fees, title insurance, and escrow fees.
- Review the final contract before signing to ensure you understand all terms and conditions.
- Receive your keys and prepare for homeownership, which includes setting up utilities, purchasing home insurance, and planning for ongoing maintenance.
Financing a factory-built home may seem complex, but understanding your options and following these steps can simplify the process. Government-backed and conventional loan programs, combined with down payment assistance, make homeownership more accessible than ever.
With careful planning, the right financing, and a solid understanding of your options, you can successfully navigate the path to owning a factory-built home and enjoying its financial and lifestyle benefits.