All About USDA Loans for Manufactured Housing

USDA loans can offer serious benefits for those who use them. With no down payment requirements, low interest rates and looser income requirements than many other loan products, they open the door to homeownership for many Americans who previously had no other options. Even better, utilizing a USDA loan on manufactured and modular housing is possible.

Differences Between Manufactured, Mobile and Modular Housing

We use manufactured and mobile interchangeably. However, there is a slight difference. The naming convention depends solely on the manufactured date. The Department of Housing and Urban Development (HUD) considers factory-built homes manufactured before June 15, 1976, as mobile homes. Homes built after that date are manufactured homes.

Manufactured homes are single or multi-width units that are constructed offsite and transported to the property. To be eligible for a USDA loan, these homes need to be attached to a permanent foundation. A red certification label must also be displayed on the exterior of each transportable section. The certification label must be affixed in a visible location and remain visible to complete the installation of the home at the designated site.

Modular homes are pre-fabricated houses comprised of multiple modules that are typically shipped to the home site in pieces and assembled there by professionals.

The ability to use USDA loans for modular housing and manufactured properties further expands home buying opportunities for lower-income Americans, ensuring they have access – and a way to finance – affordable, safe and high-quality housing.

USDA Manufactured and Modular Property Requirements

For modular or manufactured housing to be eligible for USDA financing, the property must meet certain requirements first.

The Unit

The housing unit must be built within the last 12 months and purchased from an approved dealer or contractor. The unit must be new and never installed or occupied at any other site or location. Manufactured single-wide homes must be at least 12 feet wide and have a minimum of 400 square feet of living space. Double-wide homes must be at least 20 feet wide.

Safety

The home must meet all Federal Manufactured Home Construction and Safety Standards (FMHCSS), which dictate how the property should be manufactured, constructed and installed.

The Site

The site on which the home is placed must be classified as real estate and taxable as such. It must also be affixed to a permanent foundation and located in an approved USDA-eligible rural area.

The home's lowest point should be higher than the 100-year floodplain and have water access and wastewater disposal mechanisms.

Appraisal

As with a traditional home purchase, USDA lenders will order an appraisal of any modular or manufactured property to ensure it meets all appropriate financing standards and assess its current market condition.

USDA Loan Restrictions

There are certain scenarios when a USDA loan cannot be used – even if the site is an approved rural area and you meet eligibility requirements as a borrower.

USDA Loans and Mobile Homes: Loan Restrictions

First and foremost, USDA loans cannot be used to finance a site without an actual home on it.

They also aren't eligible to pay for:

• Any unit that doesn't meet FMHCSS requirements
• A site that is already owned by another party
• An existing, pre-owned manufactured home or repairs to one
• Furniture or other movable pieces of interior property

USDA Loan Process for Modular Homes

The USDA loan process for modular homes isn’t starkly different than that of any other loan products. But you’ll typically need a construction loan to make these work.

In addition, the property must meet a few additional requirements, be covered by a warranty and meet other eligibility standards before the loan can be approved.

The USDA loan process includes:

• Warranty Requirements – The home’s dealer must provide proof of warranty for the home to the lender. This warranty must comply with all HUD requirements.
• Lender Requirements – The lender should have a copy of all manufacturer warranties on file. They will also require a guarantee fee and an annual fee (similar to PMI) if the loan is for 80 percent or more of the sales price.
• Certification Requirements – The dealer and buyer must sign a document certifying that the home sustained no damage during transport or assembly.
• Lien Requirements – You’ll need to ensure all contractors have been paid and that there are no liens attached to the property for work performed.
• Real Estate Tax – The home needs to be taxable as real estate under state law.
• Title and Lien – The title and lien must be recorded in local land records as including both the property and the site itself. The mortgage must have a title insurance policy, and you, as the buyer, must acknowledge that the home, though movable, needs to be secured to the site to be eligible for USDA financing.

Once all these requirements have been met, the home is constructed on its permanent foundation, and all liens are removed on the property, the loan can be approved and your funds dispersed.

Hurdles

One of the biggest hurdles in using a USDA loan on a modular or manufactured home can be finding a lender.

Not all lenders make loans for manufactured housing or offer financing for new construction.

If you’re interested in modular or manufactured homes, make sure to look for lenders who not only offer USDA loans on these properties but who also have deep experience with them. This will ensure your loan process goes smoothly and without error.

Buying a Modular or Manufactured Home via USDA Financing

No matter the property type in question, USDA financing can offer significant cost-saving benefits – both up front and over the life of your loan.

With no down payment requirements, looser credit and income guidelines and affordable PMI rates, a USDA loan could save you thousands of dollars in the long term.

To learn more about your eligibility for USDA loans for manufactured homes or modular housing, contact a home loan specialist today.