MH FINANCING: FHA Mortgage Loans for Manufactured Homes Pros and Cons
The following contains excerpts from an online posting by FORBES Advisor (Personal Finance) – June 09, 2023
Whether you’re buying your first or fifth traditional home or a manufactured home, a Federal Housing Administration (FHA) loan can make it easier to afford a mortgage. These loans typically have lower down payment requirements compared to conventional loans.
FHA loan rates can vary by lender,though, so be sure to compare your options before submitting a mortgage application.
What is an FHA Loan?
An FHA loan is a mortgage insured by the Federal Housing Administration. This government agency guarantees the loan, but it doesn’t actually lend money. Instead, lenders who participate in the FHA program are the ones who provide funds to homebuyers with government backiing.
It’s worth noting that when we say the FHA insures the loan, that insurance isn’t for you. Rather, the government is insuring the lender and promising they won’t be out the money if you default on your payments.
Pros and Cons of FHA Loans
Like all financial products, there are benefits and drawbacks to FHA Loans
Pros of FHA Loans
Here are some of the reasons you might want to take out an FHA loan:
- Financing for manufactured homes: The FHA will insure loans for factory-built homes including “mobile homes” and manufactured homes. Loans may be available regardless of whether you own the land where the home will be located or plan to live in a mobile home park or manufactured home community.
- Smaller down payment: With a conventional loan, you may be required to make a 20% down payment. However, with an FHA loan, your down payment could be as little as 3.5%. If your credit score is below 580, you’ll need to put down at least 10%.
- Lower credit requirements: Lenders require documentation of your income and employment, but many will accept credit scores far below those required for conventional loans: To be approved for a conventional loan, you will typically need a credit score of at least 620, but you can qualify for an FHA loan with a score as low as 500.
Cons of FHA Loans
FHA loans aren’t ideal for everyone.though. Here are a couple drawbacks:
- Mortgage insurance premiums: Otherwise known as MIPs, these are the most significant downside of an FHA loan. You’ll have to pay an upfront MIP and an annual MIP when you take out an FHA loan. The good news is that if you make a down payment of 10% or more, the premium will automatically end after 11 years. The government also recently reduced the cost of monthly MIP payments by 30 basis points for all FHA borrowers that took out loans after March 20,2023.
- Additional inspection requirements: FHA loans have specific inspection requirements to confirm a home is worth its price and that it meets certain health and safety standards.
- Loan limits: Depending on housing prices in your area and the type of home you want to buy, it might be difficult to find a home you like within FHA lending limits. (Note: this most likely would not apply when purchasing a new manufactured home).
