Chattel refers to movable property such as a mobile home. This type of property requires a chattel loan which is a loan where the manufactured home (or mobile home)is not permanently attached to the property it sits on.
Find out how Chattel loans work in Arizona and some of the pros and cons of this type of loan.
How Do Manufactured Housing Mortgages Work?
Financing a manufactured or modular home varies depending on where the house will be located. Homes on land included in the mortgage have different financing terms than homes financed separately from the land.
Mortgages for purchasing or refinancing a manufactured home can cover the home only (chattel), land and home, or construction loans for houses and other structures like garages and decks. Qualifying for a mortgage for manufactured housing involves the same steps as qualifying for financing a site-built home. You will need to put money down, go through credit checks, and prove sufficient income.
For those who finance the home only through a chattel loan, options like FHA or VA-backed mortgages may not be possible. Chattel mortgages offer a fast closing and are streamlined compared to traditional mortgages. Chattel mortgages may be used to finance manufactured homes that are not permanently attached to a foundation. The mortgage remains in force if the house is moved to another location.
Chattel loans require down payments ranging from five to 20%, slightly higher than some conventional mortgage products. Remember that traditional mortgages have higher closing costs and higher amounts borrowed to cover those costs, so chattel loans with higher down payments can have similar monthly payments to conventional mortgages. Loan amounts are smaller, and the length of the loan is also shorter.
What Are the Pros of Chattel Loans?
Chattel loans have several advantages for buyers of manufactured housing. Since they cover the housing only and not the land, the processing is much faster; financing and delivering the manufactured home could take as little as 30 days. Purchasing a manufactured or modular home and land takes longer. Appraisal and foundation construction can add months to the financing timeline.
Applicants for chattel loans provide documentation at their own pace, meaning they can speed up the loan process themselves by promptly getting documents posted or mailed. It's unnecessary to rely on the bank, title company, appraisers, or construction companies to keep the process moving forward.
One unique advantage of a chattel loan is that the bank can only take the manufactured home in a foreclosure, while the land remains yours if you own the property. While interest rates can be higher for chattel loans, loans are generally smaller and can be paid off faster than a traditional mortgage, which often has a 30-year term. Processing fees are lower, but like regular mortgages, borrowers may deduct interest from their taxes.
What Are the Cons of Chattel Loans?
Every financial decision has a number of pros and cons depending on the circumstances. Chattel loans are no exception. Interest rates will be higher since the loan isn't backed by land, so the bank only has an interest in the manufactured home. Since banks face higher risk with chattel loans, interest rates vary from 6 – 13%. As with any type of loan, rates are dependent upon income, credit score, and debt-to-income ratio. As with any loan secured by property, nonpayment can result in the loss of the manufactured home.
How Do I Choose a Financing Option?
Multiple financing options are available depending on your situation and whether the manufactured home loan includes the land. Chattel loans offer a simplified and quick way to secure a new home for the manufactured home only. Government-backed loans like FHA and VA often work best for those who plan to finance a manufactured home plus land and improvements to the land like garages, decks, and driveways.
Why Choose Manufactured Housing?
Manufactured and modular housing, including single-wides and double-wides, offer affordable housing options built to state and federal safety standards. Manufactured housing has changed a lot over the years, offering numerous options and improved quality. It offers many advantages:
Affordability and lower taxes.
The ability to downsize and have a simplified lifestyle.
Benefits of homeownership and having your own space to personalize.
Options for lot rental or owning the land.
The ability to have improvements like garages, decks, and porches.
The tax situation on manufactured housing varies depending on where it is located. If it is located on land you own, it is subject to standard property taxes based on the value of the land and the structures on it. Homes on rented land may not have property taxes depending on state and local tax law, but land taxes are rolled into lot rent.
What is the Difference Between Modular and Manufactured?
Manufactured and modular housing are both constructed entirely or partially at a factory. The main difference between manufactured and modular housing is that modular housing needs to meet the same building codes for site-built homes dictated by local, state, and regional authorities. Manufactured homes meet Department of Housing and Urban Development codes on a federal level. You can learn more about what the difference between a modular and manufactured home in our blog.
Modular homes are delivered to the home site in sections and constructed on a permanent foundation, sometimes including a basement. They often are indistinguishable from site-built homes. Their value follows the housing market.
Manufactured homes, which is most suitable for chattel mortgages, is completely factory-built and includes a chassis. The wheels can be removed after it's set up on either a leased or owned lot. Newer models of manufactured homes may be in single- or double-wide styles and other architectural styles. Manufactured housing can include factory-built decks and porches as well.
Chattel home loans for manufactured homes are among the numerous financing options available for home buyers. Cascade specializes in financing modular and manufactured homes, and is experienced in handling multiple types of home loans. Confirm you are qualified by obtaining a Certificate of Eligibility, reviewing your finances, and becoming prequalified through Cascade.