Hey there! In this article we’ll discuss the differences between mobile home financing and traditional financing. Here’s a definition breakdown:
1. chattel (home only) loans AKA mobile home financing and
2. real property loans aka traditional financing (like FHA or conventional mortgages)
Mobile Home Financing – Let’s Unpack It!
Chattel loans are a type of financing for mobile homes (not attached to land). They’re a way for you to borrow money to buy a mobile home – being that the mobile home is considered personal property and NOT real estate (basically, because it’s not attached to land). Here are some things to know about chattel loans:
• Paying Back: You’ll need to pay the money back usually in a shorter time (usually no longer than 20 or 25 years.)
• Interest and fees: The cost of borrowing (called interest) generally is a bit higher with these loans (depending on your credit score and other things). You’ll usually also pay higher closing costs.
• Sales tax: When you buy a mobile home that’s not attached to land – you’ll usually have to pay sales tax – just like when you buy a vehicle.
• Roll it in: With a chattel mortgage – most lenders will allow you to add sales tax and closing costs to the money you’re borrowing to buy your home – so you won’t have to pay them out of pocket.
• Loan amount: Some chattel lenders will allow you to borrow as little as $10,000! Traditional lenders would never allow someone to borrow that low an amount.
• Don’t forget lot rent: Now, you don’t pay your lot rent to the chattel lender (you pay it to the mobile home community) BUT you do need to add this to your mortgage (loan) amount to get the full amount you’d need to pay for your home each month.
Traditional financing – Take a Closer Look!
Real property or traditional loans (like FHA or conventional mortgages) are for things that you can’t move, like a home attached to land or the piece of land itself. Compare the things below to what we talked about with chattel loans (above).
• Paying Back: You usually get more time to pay the money back, usually up to 30 years.
• Interest: The cost of borrowing might be lower compared to chattel loans.
• Tax: You won’t pay sales tax but you’ll usually have to pay what are called transfer taxes (which are monies paid to the government to transfer a deed into your name)
• More to pay out of pocket: With a traditional mortgage – you’ll have to save a good amount of money – because you may have to pay for several things in addition to your down payment – like closing costs.
• Loan amount: Most traditional lenders won’t let you borrower less than $50,000
• No lot rent, buuuut: You may not pay lot rent with a traditional home – but depending on where the home is located (is it in a condo community? Is it a townhome) – you will have to pay what’s called a HOA fee (not to the lender). An HOA fee is similar to lot rent – it’s a monthly amount you pay to the organization that manages upkeep of the complex or community where your home is at.
Spotting the Differences
So to sum it up: Mobile home financing is for mobile homes that are not attached to land, they may cost you a bit more, but you are able to roll several costs in to your loan so you won’t have to pay these out of pocket and you’ll usually have the ability to borrow less. Traditional financing is for things that stay put, like houses and land, you’ll often have more time to pay the loan back and it might cost less in interest. But you’ll usually have more money that you’ll have to pay out of pocket and you’ll be required to borrow more.
So, when you’re thinking about buying either a traditional home or mobile home – remember – if the home isn’t attached to land – you’ll have to get a chattel loan. It’s best to talk to a company that specializes in these loans – like us at Midwest Mobile Home Loans – if you’re thinking a mobile home is the way you’ll go. Traditional lenders don’t know much about chattel loans because they don’t offer them!
But no matter which loan you go for, it’s all about making smart choices and being responsible with your money. So get as much information as you can so you can make the decision that’s best for you (and your family!).
