Manufactured homes are a popular option in Texas. In July 2021 alone, 1,519 manufactured homes were shipped in the state. These dwellings make homeownership more flexible and affordable than site-built options, so a growing number of families are able to get into the homes they want with this approach.
Chattel loans are an extremely popular option for financing a manufactured home. In fact, about 42% of the loans used for manufactured homes are chattel loans. When you go to a lender to discuss purchasing a manufactured home, this is often the first solution they will suggest.
What is a Chattel Loan?
A chattel (pronounced like "cattle" with a hard CH) loan provides financing exclusively for mobile or manufactured homes. The word "chattel" means a movable piece of property, which perfectly sums up the purpose of this type of financing. Chattel loans are unique in this respect, as most other loans that you can obtain for a manufactured home are also available for site-built homes in one form or another.
You can use a chattel loan for many different purchases including:
- Manufactured homes or mobile homes.
- Modular homes that are built in a factory and assembled on-site.
- Heavy machinery, such as a forklift or bulldozer.
- Large vehicles such as boats and airplanes.
What Are the Benefits of a Chattel Loan?
A chattel loan is an excellent choice for many prospective homeowners. This type of loan works very differently from a more conventional mortgage, which can help you move through the home buying process faster. Executing a traditional land and home mortgage may take as long as three months. Meanwhile, lenders can execute a chattel loan in just 30 days.
Compared to conventional mortgages, chattel loans typically have shorter loan terms and lower processing fees. Your processing fees can be up to 50% lower with a chattel loan than with a traditional mortgage. Since manufactured homes are cheaper than site-built homes, this short-term solution is a smart option that will help you pay your home off faster.
Chattel loans offer other financial benefits as well. The interest on the loan is typically tax-deductible, and many lenders allow you to structure the repayments around your monthly cash flow, keeping your home affordable even when your income fluctuates.
What Are the Drawbacks of a Chattel Loan?
While a chattel loan is a great option for many borrowers, it's not right for everyone. There are many loan options available to you, so it's important to consider all your options when you choose your financing. You can only use a chattel loan to finance the manufactured home itself. You cannot use this type of loan to purchase the property your home sits on. This is perfect if you're leasing the land. However, families interested in buying a lot with their manufactured home may want to consider another option, like an FHA manufactured home loan.
A chattel mortgage usually has a higher interest rate than a traditional mortgage. You can expect the interest rate for a chattel loan to be 0.5 to 5% higher than a traditional mortgage loan. On average, chattel loans have an interest rate 1.5% higher than other loan options. You should compare the difference in interest rates with the savings you enjoy from other aspects of the chattel loan to determine which option serves your budget better.
Your property secures the chattel loan, which means that the lender holds an ownership interest in your manufactured home until you've repaid the loan in full. If you fail to make payments on your chattel loan, the lender can repossess the property. The process of repossessing a home secured with a chattel loan is very quick, averaging only 30 to 81 days.
What Are the Requirements for a Chattel Loan?
To qualify for a chattel loan, you must provide a variety of personal and financial information to your lender. Different lenders will have different requirements for their manufactured home loan programs. However, in general, applicants for a chattel manufactured home loan must:
- Have a credit score of at least 575.
- Have a debt-to-income ratio of 50% or less.
- Apply for a loan between $35,000 and $275,000.
Is a Chattel Loan Right for Me?
If you're considering a chattel loan, but not yet sure if this is the right option, there are a few key points to consider. A chattel loan is probably the best option for your needs if:
- You want to pay off your loan quickly. A traditional mortgage typically has a 30-year term. A chattel manufactured home loan, however, is usually 15 to 25 years.
- You want to purchase your home quickly. You can execute a chattel loan much quicker than other types of mortgages.
- You are not interested in purchasing land with your manufactured home. Many other loans for manufactured homes require that you own the lot your home sits on.
- The manufactured home does not sit on a permanent foundation. Nearly all other loan options stipulate that manufactured homes must have a permanent foundation. However, with a chattel loan, you may place your manufactured home on another type of foundation such as blocks or metal piers.
- You're confident that you can make the loan payments in full and on time. Monthly payments for a chattel loan are often higher than a conventional loan since the term is shorter. It's crucial that you're able to afford these payments, as your home can be repossessed very quickly if you don't.
In the right situation, a chattel loan can help you get into your home quickly and efficiently.
If you're interested in taking out a chattel manufactured home loan for a property in Texas, our team at Cascade Financial Services can help! We offer chattel home loans as well as many other options that are designed exclusively for manufactured homes. We specialize in this type of property and are uniquely equipped to help you select the right loan for your family's needs. Contact us today to learn more and get started on the path toward prequalification with a loan that fits your situation.