Manufactured Home Red Flags

Manufactured Home Red Flags

Financing a manufactured home can be more complicated than financing a traditional site-built home. Property condition, HUD documentation, foundation requirements, prior moves, land ownership and even the lender you choose can affect whether the home qualifies.

Knowing the potential red flags before making an offer can save time, money and frustration.

What to know

1. HUD tags, data plates and the age of the home matter
2. The foundation and skirting must meet loan requirements
3. Loan programs have different down payment and eligibility rules
4. The manufactured home usually needs to be on land you own
5. A home that has been moved a second time can be a major problem
6. Structural modifications and additions need proper approval
7. The appraisal needs acceptable manufactured-home comparable sales
8. Flood zones and required flood insurance can create financing issues
9. Repair escrows may not be available
10. Second dwellings and ADUs can complicate financing
11. Certain property types and uses may not qualify
12. Lender overlays can be just as important as the basic loan guidelines

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1. HUD Tags, Data Plates and the Age of the Home

Manufactured homes generally must have been built on or after June 15, 1976. Homes were originally built with HUD certification labels, commonly called HUD tags, along with a data plate.

Missing HUD tags or data plates don't necessarily end the transaction, but they can create additional documentation requirements and delays. Some lenders also impose their own age restrictions beyond the basic loan-program requirements.

2. Foundation and Skirting Requirements

A foundation certification from a licensed professional engineer may be required.

Foundation skirting must also meet applicable requirements. Non-load-bearing skirting generally needs to be permanently attached to appropriate backing and provide ventilation. FHA has specific perimeter enclosure requirements, and vinyl skirting by itself may not be acceptable.

The tow hitch and running gear must also be removed.

3. Loan Program and Down Payment Rules

Manufactured-home financing varies significantly by loan program.

Conventional financing may allow up to 95% loan-to-value on an owner-occupied purchase, with certain exceptions such as qualifying MH Advantage homes.

FHA financing may allow up to 96.5% loan-to-value.

VA financing may allow eligible borrowers to purchase with zero down, although individual lenders may impose more restrictive requirements.

USDA financing may be available for qualifying manufactured homes, but additional age and property requirements can apply.

Second homes may be eligible for conventional financing with larger down payments and potentially higher interest rates and mortgage insurance costs.

4. Land Ownership and Property Classification

Traditional manufactured-home financing generally works best when the borrower owns both the home and the land.

Homes located in mobile home parks where the land is leased generally do not qualify for traditional real estate mortgage programs. Leasehold properties and manufactured-home condominium projects can also be difficult to finance.

Manufactured homes located in approved condominium projects may qualify under certain circumstances.

5. A Second Move Can Be a Major Problem

A manufactured home that was installed at one location and later moved to another location can become very difficult to finance.

Most traditional loan programs generally will not finance a manufactured home after a second move. VA financing may provide an exception under certain circumstances, although additional inspections and lender requirements may apply.

Always determine whether the home has ever been relocated before making an offer.

6. Structural Modifications and Additions

Structural changes to an existing manufactured home can create financing problems when they were completed without proper approval.

Modifications should generally be approved by a licensed professional engineer or the appropriate local building department, with permits obtained when required.

Unpermitted additions or alterations should be investigated early in the transaction.

7. Manufactured-Home Comparable Sales Matter

The appraisal needs appropriate manufactured-home comparable sales.

For a multi-wide manufactured home, lenders may require at least two manufactured-home closed sales in the appraisal report.

For a single-wide home, when the lender allows this property type, the appraisal generally needs at least one comparable single-wide sale.

A lack of acceptable manufactured-home comparable sales can make financing difficult.

8. Flood Zones Can Create Financing Problems

Required flood insurance can complicate manufactured-home financing, particularly with certain FHA transactions.

Depending on the property and loan program, an elevation certificate or flood-map amendment may be necessary. These can add expense and may not always resolve the financing issue.

Flood-zone status should be investigated early whenever there is a concern.

9. Repair Escrows May Not Be Available

Manufactured homes needing repairs can present another challenge.

Conventional manufactured-home loans generally have limited options for allowing lender-required repairs to be completed after closing.

FHA, VA and USDA programs may permit certain repair escrows, but availability depends on the circumstances and the lender.

10. Second Dwellings and ADUs

A second structure on the property can significantly affect financing.

A vacant manufactured home used only for storage may sometimes be acceptable if it is not connected as a functioning residence and doesn't create a health or safety issue.

Accessory dwelling units, or ADUs, require additional review. Eligibility varies by loan program, the type of ADU and whether the primary residence or ADU is itself manufactured housing.

11. Property Types and Uses That Can Cause Problems

Manufactured homes are generally not eligible for standard conventional or government investment-property financing.

Two- to four-unit manufactured properties can also be problematic.

Subordinate financing, such as a seller carryback or piggyback second mortgage, may not be permitted.

Manufactured homes located in PUDs containing a significant number of single-wide homes may also face additional lender restrictions.

12. Lender Overlays Can Make a Big Difference

Meeting Fannie Mae, Freddie Mac, FHA, VA or USDA guidelines does not automatically mean every lender will approve the loan.

Individual lenders can impose additional requirements called overlays. A lender may require a larger down payment, restrict the age or type of manufactured home, decline certain property configurations or simply not offer a particular manufactured-home loan program.

This is why lender experience matters. A manufactured-home transaction that one lender says cannot be done may sometimes be acceptable through another lender that understands the property type and the applicable guidelines.

Bottom Line

Manufactured homes can be successfully financed, but potential problems should be identified as early as possible.

Before making an offer, verify the home's age, HUD documentation, foundation, land ownership, move history, additions, property classification and overall condition. Just as importantly, work with a lender experienced in manufactured-home financing who can identify potential issues before they become expensive surprises.

Loan guidelines and individual lender requirements can change, and lenders may interpret or apply guidelines differently. Always verify the requirements for your specific property and loan program.