Does FHA Finance Manufactured Homes?

The Federal Housing Administration (FHA) offers financing options for manufactured homes, making homeownership more accessible. As part of the Department of Housing and Urban Development (HUD), the FHA aims to facilitate affordable mortgage financing by insuring loans from private lenders. This insurance protects lenders if a borrower defaults, encouraging them to offer mortgages to individuals who might not qualify for conventional loans. Since its establishment in 1934, the FHA has expanded homeownership opportunities across the United States.

FHA Eligibility for Manufactured Homes

For a manufactured home to qualify for FHA financing, it must meet specific property criteria. The home must have been built in compliance with the Manufactured Home Construction and Safety Standards, known as the HUD Code. A visible HUD Certification Label, or HUD tag, affixed to each section of the home, evidences this compliance. Homes constructed before June 15, 1976, are classified as mobile homes and do not meet FHA eligibility.

The manufactured home must be permanently affixed to an FHA-compliant foundation. This foundation must be designed to withstand natural forces and support the structure. An engineer or architect licensed in the state must certify that the foundation adheres to the Permanent Foundations Guide for Manufactured Housing, HUD Publication 7584. The home’s wheels, axles, and tongue must be removed, and a permanent perimeter wall, called skirting, must enclose the foundation.

The home’s age and condition also factor into eligibility. Homes built after June 15, 1976, must meet FHA’s minimum property standards. These standards ensure safety, security, and structural integrity, including adequate plumbing, heating, and electrical systems, and freedom from health hazards. The manufactured home must have a minimum floor space of 400 square feet.

The property must be on a permanent site owned by the borrower, or on long-term leased land, and comply with local zoning ordinances. If the home was previously titled as personal property, it needs a “de-titling” process to convert its classification to real estate. This reclassification allows the home and land to be financed together under an FHA loan.

Borrower Qualifications for FHA Loans

Borrowers seeking an FHA loan for a manufactured home must meet specific financial criteria. Credit score requirements are more flexible than conventional loans, with a minimum FICO score of 580 needed for the lowest down payment option. If a borrower’s credit score falls between 500 and 579, a higher down payment of 10% is required. Lenders may impose their own higher credit score requirements, seeking scores of 620 or above.

Debt-to-income (DTI) ratios are evaluated to ensure the borrower can manage monthly payments. The FHA sets a front-end DTI limit, covering housing-related expenses, at 31%, and a back-end DTI limit, including all monthly debt obligations, at 43%. Lenders may approve higher DTI ratios if compensating factors are present, such as significant cash reserves or a strong credit history.

Borrowers must demonstrate consistent and verifiable income, showing a stable employment history for at least two years. Lenders verify employment and income through pay stubs and W-2 forms. The FHA requires the manufactured home to be used as the borrower’s primary residence. Borrowers must intend to occupy the property within 60 days of closing and for at least one year.

A minimum down payment is required for FHA loans, starting at 3.5% of the purchase price for those with a credit score of 580 or higher. Borrowers must also pay a Mortgage Insurance Premium (MIP), which includes an upfront and an annual premium. The upfront MIP is 1.75% of the loan amount and is paid at closing, though it can be rolled into the loan. The annual MIP is divided into monthly payments and remains for the life of the loan.

The FHA Manufactured Home Loan Application

The process of applying for an FHA loan for a manufactured home begins by finding an FHA-approved lender. Not all lenders offer FHA loans for manufactured homes.

After selecting a lender, borrowers go through a pre-approval process. This initial step involves the lender reviewing the borrower’s financial information, including income, assets, and credit history, to determine a preliminary loan amount. A pre-approval letter indicates the amount a borrower is likely to be approved for, providing a clear budget for home searching.

Once a suitable manufactured home is identified, a formal loan application is submitted. This requires comprehensive documentation, including pay stubs, W-2 forms, and bank statements. Lenders also request identification, along with tax returns if applicable.

An appraisal and inspection are important steps in the application process for manufactured homes. An FHA-approved appraiser evaluates the home to ensure it meets FHA minimum property standards. The appraisal also verifies that the home is permanently affixed to a compliant foundation and assesses its market value.

The loan application then proceeds to underwriting, where the lender conducts a thorough review of the borrower’s financial profile and the property’s eligibility. Underwriters assess all submitted documents to confirm that the borrower meets credit, income, and DTI requirements, and that the manufactured home fulfills FHA property standards.

The final stage is the closing process, where all parties sign the necessary loan documents. Borrowers are responsible for various closing costs, which can include the upfront mortgage insurance premium, lender fees, appraisal fees, and title insurance. Some closing costs can be rolled into the loan amount, while others may need to be paid out-of-pocket.