Mobile homes provide a level of flexibility that isn’t made available by traditional housing. They can be moved (though not always easily) if you plan to replace them at any point in time.
They also take less time to build, as their construction is not subject to weather or other natural hindrances; and they offer all this for a fraction of the cost of traditional homes.
This doesn’t mean that they’re cheap, however—a mobile home can cost upwards of $100,000. The average person cannot afford to pay that down, and therefore needs to look for financing options.
In this article, we will discuss what a mobile home is, the different types of mobile homes, and how to get financing for your mobile home.
What qualifies as a mobile home?
A mobile home, according to the Manufactured Home Act, is defined as “any structure, whether ordinarily equipped with wheels or not, that is designed, constructed or manufactured to provide residential accommodation and to be moved from one place to another by being towed or carried.”
There are three general kinds of homes that fit this definition: modular homes, manufactured homes, and ready to move (RTM) homes.
They are assembled in factories to near completion and are then transported by trailer to their destination.
Every mobile home must be certified by the Canadian Standards Association (CSA) before they leave their manufacturers. The manufacturer will then attach a CSA label to the house as proof. This label shows that the house meets certain specifications and is safe to live in.
Any home that meets all these specifications can be officially classified as a mobile home in Canada.
You can either place your mobile home on a piece of land you own; or you can place it on a leased or rented lot.
Manufactured vs. modular vs. RTM homes
These three types of homes are closely related. They have similarities and differences, which tend to be misunderstood. I will explain them in as simple terms as possible.
Manufactured homes: A manufactured home is a single-story home built on top of a steel frame. This is the type of home you would find in a mobile home park. It is a trailer with wheels mounted underneath it, which is manufactured in a factory in either one section or two and assigned a serial number.
A manufactured home built in one section is called a “single wide” home or trailer, while a home built in two sections is called “double wide.” They are usually shipped from the US, and then transported to the location where they are to be placed.
If the home is meant to be temporary, it is placed on a wooden block foundation which is anchored to the ground. However, for a more permanent situation, the foundation can be made of concrete or anchored steel.
Once placed on the foundation, the home is skirted, to hide the wheels underneath. Assembly can be completed up to 95% in the factory, and a manufactured home can be ready to move into in as little as one day.
Manufactured homes must be built to the CSA z240 MH building code standard; except in jurisdictions such as Alberta, which require CSA a277 certification; and Saskatchewan and British Columbia, which have their own separate requirements.
Modular homes: Modular homes are manufactured in sections (known as modules) in a controlled building center or factory, which is protected from environmental factors like the weather.
These modules are then transported to the building site, where they are permanently put together and placed on a concrete foundation. Finally, some minor interior and exterior work is carried out to hide the modular nature of the home. Assembly can be completed up to 85% in the factory, and on-site work can take as little as 2 weeks, after which they are ready to occupy.
A modular home is very similar to a traditional home, the only differences being that a modular home is put together in a factory, and costs 20-30% less per square foot than a traditional home.
It’s practically impossible to tell the difference between them once completed, and unlike manufactured homes, they can be multiple stories high.
Manufacturers of modular homes need to get the CSA a277 certification before the home can be shipped, as it certifies that all quality testing has been carried out and the home is up to code.
They are also considered real estate and have been used to build residential and commercial buildings in some parts of Canada. This means that you can take out a
mortgage on a modular home. However, your home has to be CSA 277-certified before your mortgage can be approved.
Ready to move (RTM) homes: An RTM home is exactly what its name implies—ready to move. It is similar to a manufactured home in that it is usually transported as a whole, but different in that it is not a trailer.
Similar to modular homes, RTM homes do not have wheels, and are instead built to resemble traditional homes. They are also built in controlled, environmentally protected building centers, where weather conditions cannot hinder their construction.
Another similarity is that after they are transported to the sites where they are to be placed, they are affixed permanently on a concrete foundation.
They differ from modular homes, however, in that their design is limited. Their height is restricted to one story, because there is a maximum size threshold for a home to be transported in one piece.
Since RTM homes have to be carried in one piece, they are designed to be extra rigid so that they can withstand the force of the crane picking them up to be loaded onto the transport vehicle, as well as the journey to the site.
One benefit of building an RTM or modular home is that the foundation and the house can be built at the same time, meaning that you can move into your new home almost twice as fast.
RTM homes must meet the CSA a277 requirements and be certified at the factory before they can be delivered to the site.
Factors that determine your eligibility
There are a number of factors that determine if you’re eligible for a loan, and what kind of loan you qualify for. Some of them include:
Credit: Having a higher credit score increases your chance of getting a loan and improves the kind of loan terms you can get. Of course, there are institutions set up specifically to help people with bad credit get loans, so if you don’t have the best credit, it isn’t the end for you.
Foundation type: The type of foundation the home is placed on plays an important part in your eligibility for financing. A permanent foundation, such as cement basement will give you more leverage than a temporary one like wooden blocks.
In fact, it is a requirement with many lenders that the home is fixed to a permanent foundation before they can grant you any sort of assistance.
The more permanent the foundation seems to be, the better your chances of financing.
Land ownership: Whether you own the land on which your mobile home is placed (freehold), or you lease it (leasehold) can determine what kind of loan lenders will grant you.
Naturally, you have higher potential for financing on freehold land than leasehold because you actually own the land. Freehold properties are actually considered real estate, because you own both the land and the building that sits on it. The same cannot be said for leasehold properties.
Lenders can put a mortgage on freehold lands via the Land Titles Registry when you’re approved for financing. If your home is leasehold, you will be granted a personal loan or a chattel loan, which is registered on the home in the Personal Property Registry.
Land you own will also appreciate far more in value over time than will land you lease, and this makes it much less risky for lenders to grant you funds—some even give lower interest rates to freehold clients.
Their primary risk lenders face is that if they have to foreclose on the loan because their clients can no longer afford to make payments, they may not be able to sell the property quickly and get all their money back.
Age and condition of home: If you’re going for resale financing, lenders will consider the Remaining Economic Life (REL) of all homes—traditional or mobile—before they agree to finance them.
The newer the home, the easier it is to finance. The general rule for this is that loans aren’t given for homes manufactured more than five years ago.
Manufactured homes are thought to depreciate much faster than others, and therefore old, manufactured homes are particularly hard to finance.
They also attract higher payments than other types of mobile homes, even though they are built to a much higher standard now than they used to be.
The lower the REL, the higher the required monthly payments, as the lender would want to collect their full payment before the home loses value.
Lenders will usually demand to inspect the home before you are granted any funds.
Type of mobile home: Modular, manufactured, and RTM homes get treated differently when it comes to financing. Manufactured homes, which are built on steel frames, have overall lower financing potential; while RTM and modular homes, which are more similar to traditional homes, have better options.
New or existing lot: Whether the home is new or existing plays a big part in what you qualify for, and the type of loans you need.
If you are don’t already have land on which the home will sit, or you need finances to place the foundation before the home can be placed, you may need a special construction or progress advance mortgage.
In this situation, as a rule, you would need to have about 1/3 of the total cost of completion of the project in cash; which would be used as a down payment, as well as to make the necessary deposits and payments to set up your home.
Down payment: Depending on the amount you pay down; you may have to meet some requirements set by the Canada Mortgage and Housing Corporation (CMHC).
When it is less than 20% down, there are CMHC lending rules and requirements to meet, while 20% or more is considered conventional financing.
Read Also: Home Equity Loans: How Your House Can Get You a $25,000+ Loan
What to consider before leasing a lot
It has been established earlier in the article that mobile homes on leased property are not considered real estate—but what does that really mean for you, the buyer? Here are a few things for you to consider before making the decision to lease land for your mobile home:
No mortgage option: Leasing means you can’t get a mortgage. Mortgages are directly linked to land titles, which you can’t get on a leased property.
You can still borrow money to purchase a home, but it would be a secured collateral loan, meaning that the lender could reclaim the building (but not the land) if you defaulted on your payments.
Interest rates on these types of loans are usually around 2-3% higher than would be on a mortgage, because value of the mobile home will not appreciate like land would.
However, there may be other financing options where another piece of real estate is used as collateral.
Property value: If you owned both the land and the mobile home, you would see the value of the combined property increase over time. It’s usually the value of the land going up, though, not the mobile home.
Mobile homes tend to lose value in part because they are “personal property” and not “real property”.
Real property is defined as land and anything permanently attached to it. Anything that can be removed without consequence is not real property.
Though it isn’t easy to remove mobile homes once they’ve been placed, they still fall under this category.
However, in many places, if you own both the home and the land, you can take some affirmative steps towards converting the mobile home to real property.
Cost of financing: Because they are personal property, mobile homes are usually more expensive to finance. Personal property or chattel loans usually come with higher interest rates and shorter terms than mortgage loans.
Rent: Leasing land for your mobile home also means that you have to repay your loan while simultaneously paying rent. It also means that you could be evicted and have to move or even sell your mobile home.
Resale value: Mobile homes are not easy to resell, especially when they are in parks. Because they are hard to move after being set up, finding a buyer can be challenging unless the buyer wants to keep the mobile home where it is. It can cost thousands of dollars to move a mobile home.
Size of your home: If you’re buying a modular home, perhaps, then you should probably not lease the land you want to put it on. A larger home requires a larger lot, which means that you will spend more on rent each year.
When you do the math, it simply isn’t worth it.
How to finance your mobile home
Mobile home financing is a bit more complicated than financing for traditional homes.
When the land where your home is placed doesn’t belong to you, traditional lenders are hesitant to grant you funds, as they face a higher risk of loss. You also can’t get a mortgage from the FHA.
Of course, this isn’t always the case. Depending on the factors we discussed in the previous sections, you may be granted funds from the more traditional sources.
You could also opt for less traditional means like personal loans, which tend to cost more in interest.
FHA Loans: There are several lenders approved by the Federal Housing Administration (FHA), who give out insured loans to low-to-moderate income borrowers looking to buy a house.
Loans offered to people looking to purchase mobile homes are either Title I or Title II loans.
· Title I loans are usually granted to people looking to buy, repair, or alter their mobile homes; and you can get one whether you own the lot the home is on or not.
They usually have a maximum term of 15-25 years, and a maximum loan amount of around $69,000, $23,000, or $92,000 for the home, the lot, or both the home and the lot respectively.
· Title II loans are only granted to people looking to buy mobile homes on land which they intend to buy. These loans are granted to people who intend to use the mobile home as their primary place of residence and must cover the cost of buying the land as well.
Title II down payments can be as low as 3.5%, and the loan term can be up to 30 years, but it is required that your home has a floor area of at least 400 square feet, be classified as real estate, and be built on a permanent foundation.
Personal Loans: Personal loans are flexible loans that you can use for just about anything. They usually have a maximum loan amount of $25,000 to $50,000; but some lenders give loans of up to $100,000.
Since mobile homes are cheap, you may be able to afford one using funds from a personal loan. However, interest rates on these kinds of loans tend to be higher than on other types of loans, such as mortgages.
The upside, though, is that they’re usually cheap or free to set up, you don’t have to provide collateral, and the application process is shorter than with other loans. Some online lenders such as Cash Loans Canada Inc. provide personal loans specifically for purchasing mobile homes, to individuals in all sorts of credit situations.
Chattel Loans: This is a special type of Personal Property Loan designed for buying expensive vehicles such as boats, planes, farm equipment, and of course, mobile homes.
With this type of loan, the equipment guarantees the loan. This means that if you plan to lease the land on which your mobile home is located, you can still be granted a chattel loan.
Chattel loans tend to have shorter loan terms and higher interest rates (0.5-5%) than mortgages
Financing a mobile home is tough for several reasons. Conventional financing options aren’t as readily available for aspiring mobile homeowners as they would be if you wanted to build a traditional home.
However, as you have seen in this article, there are still quite a few options for you if you want to go mobile.