Manufactured Home

A home built entirely in a factory,transported to a site,and installed there.

Manufactured homes are distinguished from “modular,” “panelized,” and “pre-cut” homes. Manufactured houses usually are built without knowing where they will be sited, and are subject to a federal building code administered by HUD. The other types of factorybuilt housing are not assembled until the site is identified, and they must comply with the local, state, or regional building codes that apply to that site.

Because of efficiencies in factory production, manufactured houses cost significantly less per square foot than housing constructed on-site. Manufactured housing is an important source of affordable housing, especially in the South and in rural areas.

There are major differences within the manufactured housing market, so much so that it makes sense to think of two different markets. A major difference is that one segment is shut out of the mainstream mortgage market and the other segment isn't.

The Deprived Market: Many purchasers of manufactured housing must find loans in a parallel market, which is much like the unsecured personal loan market. Lenders in this parallel market assume that loss rates on manufactured house loans will be high, as they are on personal loans, and they price them accordingly. They view manufactured houses as poor collateral that provides them with little protection.

One reason for this view is that manufactured houses can be moved. Before the HUD building code went into effect in 1976, manufactured houses were called “mobile homes,” and this term is still widely used. Even though few ever leave their first site, they remain tarnished by the image of mobility.

Lender concern that the collateral can disappear is well grounded when the house sits on rented land, which is the case for about half of all manufactured houses. Most leases are short, and if the landowner decides that it is more profitable to use the land in some other way, the manufactured house owner must move it or leave it. Since the cost of moving is very high, and in many cases the property is worth little more than the debt, owners sometimes just walk away. The lender's collateral ends up in the trash heap.

In the deprived market, few owners of manufactured houses have built equity the way owners of site-built houses do. A major part of the appreciation in the value of site-built houses is due to rising land values. If you don't own the land, you don't realize this benefit. Furthermore, many purchasers of manufactured houses began with no or negative equity, putting nothing down, and including settlement costs (and sometimes furniture and insurance) in the loan.

Manufactured houses in the deprived sector also seem to have more defects than site-built homes. Because they are geared to low-income purchasers, the materials used have often been inferior. Sometimes mishaps occur in moving houses from factory to site, and sometimes the installation is defective.

Getting defects in a manufactured house fixed can be a hassle because responsibility is divided and finger pointing is common. The factory owner says the mover did it, the mover says the installer did it, and the installer says it happened at the factory.

The Healthy Market: In this part of the market, buyers of manufactured houses have them installed permanently on their own land, and qualify for mainstream mortgage financing. It is even possible to qualify under a lease, provided the lease is long enough and provides adequate legal protections to the house owner and lender.

The quality of houses in this segment is good. Quality has been improving generally since Congress passed the Manufactured Housing Improvement Act (MHIA) in 2000. The Act provided an improved system for keeping the HUD building code up to date, and required states to improve the quality of installation and to set up dispute resolution programs.

In California, some developers have used manufactured housing in lieu of on-site construction, marketing and financing them in the same way. This avoids many of the problems referred to above that have tarnished the industry.

Guidelines: Here are some guidelines for avoiding the deprived market.

Do Not Buy a Home from a Dealer in a Package That Includes Installation, Site, and Financing: Tempting as it may be, one-stop shopping in this market is a sure fire recipe for overpaying and not getting what you want. Take it one step at a time. It is easiest to compare the houses offered by different dealers if the price applies only to the house. Bundling muddies the waters.

Find the Site First: Before I did anything else, I would decide where I want my house, and whether on rented or owned land. If
your credit is good and you have enough cash to buy your own plot, you will be eligible for mainstream mortgage financing. The savings in financing costs and in rent, if converted into a “present value,” will probably be well in excess of the cost of the land.

If you rent because you can't find a plot or don't have the cash to buy one, but your credit is good, you may still be eligible for mainstream financing. This requires that you obtain a proper lease, which is one that has a term of at least five years, and provides the other legal protections required by lenders.

Freddie Mac will buy mortgages on manufactured houses secured by leaseholds in some but not all states. Freddie's requirements are complicated and you may need a lawyer to determine whether any particular lease is in compliance.

If you can't purchase a plot or obtain an eligible lease, you will be obliged to settle for personal loan-type financing, paying 2%-3% more. Even so, you will want to pay careful attention to the lease terms, which can vary widely. If you accept a monthly term, or the landlord's right to approve a purchaser, you will be at the landlord's mercy. Before you sign, talk to residents of the park about their experience.

Get a Warranty on Installation: Installation of manufactured houses remains trouble-prone. The dealer may want to include installation in the price. That is one type of bundling that makes sense, provided the dealer assumes responsibility with a strong warranty. If the dealer includes installation in the price but will not provide an adequate warranty, either ask for a price without installation, or walk.

If you buy the house without installation, you have to hire an installer yourself. This is no small matter, which is why so few buyers do it. The MHIA requires states to develop installation programs

that include installation standards, training and licensing of installers, and inspections, but compliance has been spotty. Ask local owners for recommendations, ask installers for references, and make sure they are insured.

Arrange Your Own Financing: The dealer will try to package financing into the deal. He can get you approved fast and easily, which is an attractive lure. If you can qualify for mainstream financing, however, you will do better to find your own loan. If you don't qualify, it might not matter.

manufactured home