Manufactured Home Finance Doesn’t Have to Be Predatory
The Missoula Federal Credit Union (MFCU), Montana’s largest community development financial institution, has created two new loan products to serve those seeking to achieve the American dream of homeownership through manufactured housing. Thanks to their broad eligibility criteria, small downpayment requirements and competitive interest rates, these new loan offerings will help more Montanans to become homeowners.
Previously in Montana, would-be homeowners looking considering manufactured housing had little access to finance. MFCU had no specific loan for manufactured housing, meaning loans were only made available to those buyers who could demonstrate, among other requirements, that their unit was legally classified as real property and attached to a permanent foundation. Potential buyers of homes titled as personal property, however, regularly failed to qualify for favorable MFCU financing, often forcing them to take out high-cost, short-term chattel loans from other lenders. In 2012, the Consumer Financial Protection Bureau estimated that around 68% of all manufactured housing purchase loans were “high priced,” compared to just 3% of loans for site-built homes.
After conversations with the Montana Board of Housing, the state housing finance agency, and NeighborWorks Montana, MFCU realized that too few quality loans were being made to manufactured homeowners. In just the last year, 30 out of 30 loan applications for manufactured units went unfunded. While manufactured housing has evolved from temporary, mobile structures to permanent homes that are virtually impossible to distinguish from their site-built counterparts, financial architecture had refused to evolve with it. In Montana, some 55,000 families live in manufactured homes, accounting for 11% of all occupied housing units. More than half (51%) of the manufactured housing stock in the state is affordable, compared to just 30% of all housing; giving homebuyers access to fair manufactured home loans is critical to ensure that families can take advantage of one of the most affordable housing options in the state.
With the introduction of MFCU’s Chattel Loan for Manufactured Housing and Land/ Manufactured Housing Package, buyers of manufactured homes will have considerably more access to quality financing. The first of these products is for new or existing manufactured homes not attached to a permanent foundation, while the second finances both the homes and the land beneath it. Both products require borrowers to put down just 5%, and just 3% must come from the borrower. Repayment periods ranging from five to 20 years, and interest rates are relatively low, ranging from 5-8%. Homeowners may also refinance their homes using these new loan products and may also opt to refinance their home to cash out up to $7,500 to make home improvements.
Chattel Loan Pricing (up to $60k)
Land/Manufactured Housing Loan Pricing (up to $100k)
Furthermore, in a bid to promote access to homeownership, MFCU has defined inclusive eligibility requirements for its new manufactured home loans. Only owner-occupied units qualify, and manufactured home owners who do not own the land beneath their home are eligible if they have at least a five-year lease on the lot. Moreover, borrowers need only a credit score of 620, and even those below this benchmark can still qualify through manual underwriting. Debt-to-income limits, which had previously shut out so many potential buyers, are generous, allowing for borrowers to have up to a 45% back end DTI ratio. Finally, borrowers must show they have two months of post-closing liquidity equal to the monthly principle and interest of the loan.
Summary of MFCU's Manufactured Housing Loan Products
MFCU’s new loan products, while not the panacea to all problems associated with financing manufactured housing, have the potential to not only expand access to homeownership in Montana, but also to act as blueprint for CDFIs, credit unions and others considering developing manufactured home loan products of their own. However, significant barriers still remain. For instance, traditional manufactured home community owners are reluctant to offer lease agreements of five or more years, which is required to take advantage of the MFCU product. Additionally, manually underwriting loans can be costly and time consuming, especially when paired with resolving complicated titling issues. Still, if these products are successful—and success stories are already gaining attention—they could serve as a template for more CDFIs across the nation to create better loans for manufactured homes and help to make the dream of homeownership a reality for more Americans.