What is a Chattel Loan?
If you're familiar with a traditional mortgage, you might know that a mortgage secures the loan to real property. Real property is defined as land, all the permanently attached structures to that land, and the rights of ownership. On the other hand, a chattel loan is secured by a piece of personal property that is movable. The borrower on a chattel loan may not own the land where the property sits so a chattel loan remains intact even if the property is moved off-site. Chattel loans are a common way to obtain a manufactured home. According to the Consumer Financial Protection Bureau (CFPB), about 42% of loans used to buy manufactured homes are chattel loans. These moveable manufactured homes are considered personal property, which is why they are sometimes referred to as mobile homes.
What Manufactured Homes are Eligible for a Chattel Loan?
Once manufactured homes are constructed and transferred to their site, if they are not situated on piers, wooden pillars, a solid foundation, or a basement, then they're considered personal property and therefore require a chattel loan. Although the chassis is hidden and the home typically doesn't move once it's been placed, these manufactured homes still retain a permanent chassis for transportation. As a result, these homes may still be commonly referred to as mobile homes.
Before June 15, 1976, the terms mobile home and manufactured home were used interchangeably and had the same meaning. On that date, the U.S. Housing and Urban Development (HUD) implemented stricter standards for mobile homes. As a result, homes manufactured after that date are technically referred to as manufactured homes, while homes constructed before that date are mobile homes. These HUD standards apply to the design, construction, transportability, strength, energy efficiency, fire resistance, and overall quality of the manufactured home.
Qualifying for a Chattel loan
- Minimum FICO score is 575*
- Minimum loan amount is $35,000.
- Maximum loan amount is $275,000.
- New single or multi-section manufactured homes are eligible.
- As low as 5% down**
- As high as 50% debt-to-income ratios.
- 20-23 year terms.
*Loans with a qualifying FICO score less than 600 are subject to additional guidelines requirements.
**5% down payment is subject to additional minimum FICO and residual income requirements. Please talk to a Loan Officer for further details on down payment and FICO score minimum.
Rules for Chattel Loans
- No repossessions on an auto loan within the last 24 months.
- No collection account greater than $1,000 opened within the last 12 months.
- Any active past due accounts must be paid current prior to close(collections & charge offs are excluded).
- Disputed accounts with a cumulative balance greater than $3,000 may result in a decline.
- Residual income test applies to all loans and is stricter for lower credit and higher DTI ratios.
What Are the Benefits of a Chattel Loan?
You might think that chattel loans are the same thing as regular conventional loans. That's not the case though, as chattel loans offer their own benefits. Some of the more important ones include the following:
- Monthly mortgage payments have a similar structure to conventional mortgage payments.
- Chattel loans usually have lower processing fees.
- Chattel loan interest may be tax-deductible***
- Since chattel loans are secured loans, they typically have interest rates that are lower than those associated with unsecured loans.
- Chattel loans typically have a shorter loan term than a conventional mortgage. Most chattel loans don't last longer than 23 years.
***Tax deductibility of interest varies. Consult a tax professional to determine if chattel loan interest may be tax-deductible in your situation.
What Steps Should You Take to Qualify for a Chattel Loan?
Chattel loans are available through manufactured home loan lenders and you can reach out to these businesses directly. Before you do though, you should follow a few steps:
- Check your credit report. Every time you apply for financing, the lender will consider your credit as part of the application process. The better the credit report, the lower the interest rate you might receive.
- Determine if you want to buy the land. If you plan to rent the land, you'll have fewer loan options than if you plan to purchase the land where you'll place the manufactured home.
- Figure out what type of manufactured home you wish to purchase. The type of home you want to buy can affect the loan amount.
After you've completed those steps, you'll want to submit your application and secure your down payment, if applicable. Being able to complete the application can improve your odds of qualifying for the chattel loan.
What Else Should You Know About Chattel Loans?
Keep in mind that if you have a chattel loan and happen to default on it, the lender can take possession of your personal property. Try to make timely and complete payments to avoid losing your home. That's why it's important to work closely with a manufactured home loan provider, since that company knows the ins and outs of the industry.
If you're interested in purchasing a manufactured home, a chattel loan might be the perfect solution. Whether you have more questions about the process or are looking to make a home purchase with a chattel loan, Cascade can help you. We've been in business since 1999 and have grown to become one of the top manufactured home loan providers in the country. Contact us today and we can help you get started on your paperwork today!
Contact us at (877) 869-7082 to learn more about our FHA modular and manufactured home loan programs, or get started right away by filling out our online prequalification.