Financing Barriers That Limit New Manufactured Homeownership

Securing manufacturing home financing remains a significant challenge for many borrowers. Unlike traditional site-built houses, manufactured homes have historically been treated differently financially and legally. This complicates access to financing options and creates barriers for potential buyers.

Obtaining a Loan

While several financing options are available, mortgages offer the most stability and affordability. However, only 44% of manufactured home buyers have a mortgage, compared to 95% purchasing site-built homes. Furthermore, around 35% of buyers use “home-only loans,” personal property or chattel loans. These options only finance the house itself, not the land it sits on. This contrasts with mortgages that cover both the home and the land.

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Home-only loans, while somewhat easier to obtain than mortgages, typically come with shorter repayment periods and higher interest rates. This makes them a less affordable option for many buyers. Nevertheless, they offer some legal protections at both the federal and state levels, such as disclosure requirements, lender obligations to assess borrowers’ ability to repay, and standards for repossession. However, buyers under these loans still become the legal owners of the home only after the loan is fully paid off.

Lease-Purchase or Contract-For-Deed Arrangements

Without more accessible loan options, manufactured home buyers are often left with more precarious forms of financing. These include lease-purchase or contract-for-deed arrangements. These agreements are typically made directly between the seller and the buyer. In a lease-purchase deal, the buyer rents the home before eventually purchasing it, often after an upfront fee or down payment.

In a contract-for-deed situation, buyers make regular payments directly to the seller until they fully pay for the home and gain legal ownership. Unfortunately, these contracts can be fraught with risks, including unclear terms, lack of public recording, and the buyer not gaining ownership until the final payment. This means the buyer is more vulnerable to eviction, foreclosure, or losing any equity accumulated during the payments.

Three Key Policy Opportunities to Improve Financing Access

To address these challenges and expand access to traditional mortgage financing, experts suggest three key policy opportunities that could modernize the lending process, lower financing barriers and improve the quality and accessibility of loans for manufactured homes:

1. Update Titling Practices to Facilitate Mortgages

One of the primary barriers to securing mortgage financing for manufactured homes is the requirement that the house be titled as real estate. However, in most states, it isn’t easy to title a manufactured home as real estate. This limits eligibility for traditional mortgages. State lawmakers could take steps to modernize titling laws, making it easier for manufactured homes to be titled as real estate and allowing more buyers to access affordable mortgage loans. This change would also benefit current homeowners seeking to refinance.

2. Expand Access to Home-Only Loans

The Federal Housing Administration (FHA) could expand homebuyer options by updating its manufactured home loan program (Title I) to better align with standard mortgage practices. Making this program more efficient and accessible could provide better loan opportunities for those seeking home-only loans. Additionally, government-sponsored enterprises like Fannie Mae and Freddie Mac could consider purchasing home-only loans, which would help lenders offer more competitive and accessible financing options for buyers who do not own land.

3. Strengthen Consumer Protections

Federal and state policymakers should assess the current state of contract financing and ensure that manufactured home buyers have sufficient consumer protections. These protections should safeguard buyers from predatory practices, ensure transparency in financing terms, and offer greater legal recourse in disputes. Strengthening these protections would reduce the risks associated with contract-for-deed and lease-purchase arrangements, providing borrowers more security and stability.

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Manufactured homeownership continues to be hindered by outdated financing options and limited access to traditional mortgage products. By updating titling laws, expanding access to home-only loans, and enhancing consumer protections, policymakers can help bridge the gap and make homeownership more achievable for manufactured home buyers. These reforms would improve the affordability of manufactured homes and help build long-term financial security for families across the country.