The Federal Housing Administration (FHA) insures mortgages on manufactured homes through certain lenders to give buyers fair and affordable financing options. The agency sets guidelines to ensure the homes financed with an FHA loan are safe, affordable, and meet certain quality standards for buyers. Guidelines include everything from the building process and inspections to financing qualifications.
Having a good understanding of the 2023 guidelines can help you navigate the FHA loan process and ensure you are purchasing a safe manufactured home.
The guidelines provided to mortgage lenders by the FHA set rules for the construction, inspection, financing, and insuring of manufactured homes purchased with an FHA loan. The standards for homes financed with an FHA loan are based on the Housing and Urban Development (HUD) manufactured home construction and safety guidelines.
There are also minimum qualifications for you, as the borrower, if you apply for an FHA loan for a manufactured home.
Manufactured Home Guidelines
The standards for a manufactured home to be considered for financing with an FHA loan include:
- Built after June 15,1976 and is larger than 400 sq. ft.
- 8-feet or longer in width and 40-feet or longer in length when in transport mode
- Transported by the manufacturer, not a third party
- Set on a permanent chassis
- Able to pass a foundation inspection after installation
- Classified as a single-family real estate entity in your state
Besides regular inspections, the foundation needs an inspection by a licensed structural engineer or architect once installed to verify it meets the requirements in the Permanent Foundations Guide. Before certifying the foundation is safe, the inspector checks the materials of the flooring and foundation system, anchors, and that the installer removed the wheels and axles after transport, among other factors.
HUD Certification Tag
A manufactured home is also required to have a red metal HUD label attached to the exterior. The tag shows the home complies with the HUD code and the federal guidelines for manufactured homes. The tag stays permanently affixed and is usually near the main electrical panel or the home’s data panel. It includes information like the manufacturer’s name, date of manufacture, model number, and serial number.
If you are unsure of the home’s specifications, the manufacturer, seller, or lender can help you navigate the qualifications. If a home doesn’t meet the FHA guidelines for manufactured homes, it is unlikely a lender will approve a home loan.
An FHA loan for a manufactured home can be an attractive option if you are looking for a lower-cost alternative to a traditional home built on-site. The FHA has minimum borrower qualifications for manufactured home loans it insures, including:
- A credit score of at least 580 and a debt-to-income ratio of 43% or less. If you have a lower credit score, you can still qualify but will probably need to make a larger down payment.
- The ability to make the minimum down payment, usually about 3.5% of the purchase price, unless you have poor credit.
- FHA loans require borrowers to pay mortgage insurance, which protects the lender in case you default on the loan. The mortgage insurance premium due at closing is usually 1.75% of the loan amount, and the annual premium is based on the loan amount and the loan-to-value ratio.
Pros and Cons
Manufactured homes are increasingly popular, and FHA loans offer financing options for the right buyers. But, while there are many pros to manufactured homes and FHA loans, there are also drawbacks. Understanding the pros and cons can help you make an informed decision if a manufactured home and an FHA-backed loan are right for you.
Manufactured homes are usually more affordable than other types of real estate, sometimes up to 35% less than building a traditional home, which makes them a popular option for some buyers. And, there are other positives to purchasing a manufactured home like the speed of construction, flexibility in location, and strong warranties. Besides the positives of building a manufactured home, there are also many pros to financing it with a loan insured by the FHA. These mortgages have many positives when compared to other types of home loans, like:
- Lower interest rates, saving you money over the life of the loan.
- Easier qualification with more lenient requirements for income, debt-to-income ratio, and employment.
- Lower credit score requirements compared to conventional loans.
- Low down payment of about 3.5%, where some conventional loans require 20% or more.
Manufactured homes also have some negatives to consider like fewer customization options and finding the perfect piece of land to put it on. They can also be harder to resell and sometimes don’t hold their value as well as other types of homes. Financing with conventional loans can be difficult to secure for manufactured homes, and while FHA-backed loans are available, there are some drawbacks, like:
- FHA loans require mortgage insurance premiums, adding to your overall cost and monthly payments.
- The FHA has very strict standards for manufactured homes, which can limit the number of homes eligible for a loan.
- There are FHA loan limits that can prevent your purchase if the home is above a certain amount.
The Bottom Line
Manufactured homes provide an affordable housing option for many buyers and FHA loans offer financing that is sometimes hard to secure with conventional loans. The safety guidelines set by HUD and the FHA help to ensure you are getting a safe, high-quality home, but there are also drawbacks to consider. FHA loans have required mortgage insurance premiums and if your credit is low, you might have to make a larger down payment.
If you are considering purchasing a manufactured home, it is best to meet with potential manufacturers and get quotes from multiple lenders that offer FHA home loans for manufactured homes to find the best fit.