Interest rates are on the rise across America for all types of loans. Modular home interest rates are no different in that regard. However, these homes can still be a more accessible path to homeownership—provided that the buyer knows what makes buying a modular home a unique process.
Let’s explore the differences, similarities, and a few surprising rules and exceptions for modular home loans that buyers may find valuable.
Modular Home Loans vs. Traditional Home Loans
The process of applying for a loan on a modular home is very similar to what you can expect with buying an existing house or building one new. In both cases, you may end up working with a bank, credit union, or other lender. You’ll also typically have to present the lender with tax documents, bank statements, your driver’s license or other state-issued ID, and other paperwork that proves you’re a good borrower.
Another unfortunate similarity: Modular home interest rates are increasing, along with their stick-built counterparts. However, there are some differences as well that can still make modular home loans an attractive option for buyers.
In many cases, modular homes are less expensive than traditional, stick-built houses, especially if you were otherwise planning on having your home built for you. Because of this, they come with a lending option that traditional homes do not: Personal loans.
Typically, when applying for pre-approval on a traditional home loan, banks and credit unions will try to push flexible-rate mortgages to buyers. This is because flexible-rate mortgages make them more money. Most savvy home buyers will choose a fixed-rate mortgage for this very reason, but the option is also available for personal loans.
Unlike traditional home loans, personal loans are only available at fixed rates.
Therefore, if you choose a personal loan for buying a modular home, you won’t have to worry about paying a king’s ransom on your monthly mortgage payment if interest rates spike like they did in the 1980s.
However, there’s a caveat with using a personal loan over a traditional home loan: Interest rates are higher on modular homes. Although individual interest rates can vary depending on multiple factors and conditions—including whether the home comes from an authorized dealer—this rule of thumb is something to consider when looking at a personal loan as an option for purchasing your new home.
Interest Rates on Modular Homes: What to Expect
Determining Your Modular Home Loan Interest Rate
Many factors go into how banks and credit unions determine interest rates for individual home buyers. Whether you choose a personal loan or a more conventional home loan, the lender will decide your interest rate based on:
- Credit score: This will be one of the first things the bank checks when you submit your application, and it pulls from all the factors below and more. Most of our lending partners prefer credit scores of 670 or higher, but some lenders will accommodate scores as low as 580. When a buyer has a lower credit score, the lender will typically ask for a larger down payment or mortgage insurance in some cases.
- Payment history: If you’ve been paying off student loans, car payments, or even your water or electricity bills consistently for years, the bank will be more likely to offer you a lower interest rate. However, if you skip bills multiple times, that might have lenders second-guessing.
- Income level: You don’t necessarily have to make a six-figure income to qualify for a loan with a low interest rate, but showing that you can afford to buy the house you’re most interested in goes a long way in helping the credit union set you up with a low interest rate.
- Debt-to-income ratio: When the bank is determining your modular home interest rate, it’s one thing if you have a student loan you’re still working to pay off. It’s a more serious problem if you have a student loan, $1,000 in credit card debt, medical loans, and a payment on a Corvette you bought six years ago. Even if you make over $100,000 per year—the more your situation looks like the latter scenario, the less likely you are to get a low interest rate on your modular home loan.
- Loan insurance, collateral, and down payments: Any of these can make a difference in the interest rate you receive when you’re buying a modular home. For example, if you have the funds to make a down payment worth 25% of the home’s value, lenders are more likely to give you a lower interest rate. The same rules apply if you prove to them that you’re qualified for loan or mortgage insurance or if you offer the home as collateral.
The list could go on and on, and it frequently can include things that are outside the borrower’s control—such as the Federal Reserve’s interest rates, which impact everyone in America in some form—or your liquid assets and funds, to see if you could afford to buy the home outright.
Do FHA Loans Have the Same Interest Rates for Modular Homes?
These government-backed mortgage loans are available for modular homes and are an attractive option that’s designed to lower the barrier of entry for homeowners. FHA loans for modular homes have lower requirements on down payments, use fixed interest rates by design, and generally require lower minimum credit scores than private conventional loans.
They also come with a different set of requirements because they’re provided by the government. For example, FHA inspections and appraisals are far stricter than conventional loans—every inch of the home must be in adequate working condition, and there cannot be any lead-based paint on the walls or ceilings.
You’ll also be required to pay for mortgage insurance, as FHA loans are designed for lower incomes and credit scores.
Luckily, most modern modular homes are built to meet FHA minimum property standards. However, FHA loans tend to have standard or even high interest rates compared to some personal loans.
Modular Home Interest Rates on VA Loans
For home buyers and their spouses who served in any branch of the U.S. military, there are opportunities to qualify for a loan with a lower interest rate than conventional options. While Veterans Affairs (VA) home loans come with requirements for the type of home being purchased—most mobile and many manufactured homes will be denied—modular homes are typically approved for these special government loans.
Like FHA loans, VA loans come with a unique set of eligibility requirements, both for the home and for veterans or current service members:
- As the direct borrower, you or your spouse must meet the minimum active-duty service requirements. The amount of time required can vary depending on when you served, whether you were an officer, and the branch in which you served, but typically requires a minimum of 90 days of consecutive service.
- To be eligible, you must also have received an honorable discharge or the equivalent thereof.
- The home you want to buy must undergo a VA appraisal and inspection to ensure the property meets the department’s requirements. Note that these requirements can be different from those required for an FHA loan.
There are other steps to take when applying for a loan from the VA, especially if you belong to certain groups or organizations. Credit unions that serve military members, veterans, and their families, have extensive details and expertise on the requirements to help you determine if you or your spouse qualify for a VA-backed home loan.
While there is some room for variation depending on where you live and other factors, your VA loan will typically have a lower interest rate than a conventional mortgage.
Buying a Modular Home Through Preferred Homes
For those who aren’t sure where to start with buying a modular home, Preferred Homes has a number of lenders who are familiar with the process. You’ll want to get a loan with one of our partners before you start shopping for your new modular home.
To get the lending process started, you’ll need to get pre-approved, meaning the lender will check your credit score. If you have a credit score at or above 670, you’ll likely be able to move forward with the application process with ease. However, you won’t necessarily be out of contention if it falls below that threshold, either.
Once the bank knows more about your credit score, you’ll need to provide the following documents to their loan officer:
- Driver’s license
- Two months’ worth of bank statements
- W-2s from the last two years
- Current pay stubs, ideally dated after the application is submitted
- Awards letters for fixed income for the last three years, such as child support or pension funds
- Proof of where the home will be going, whether it’s a deed for a private lot or signed lease paperwork for a home park.
The banks we work with know who we are, so your modular home will already be approved for a loan from them. Our homes also follow FHA guidelines for safety and are compliant with VA standards, so you can start the process knowing it’ll only be a matter of time before we’re getting you into your dream home.
Get an Affordable Modular Home
Modular home loans are a great way to start life as a homeowner, and they’re easier to get than site-built home loans in many cases. However, even though interest rates are on the rise, they don’t have to block your path to homeownership.
Have questions about financing or interest rates on your modular home? We’re here to help. Contact us today to see how we can help you get into your own home.
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