Modular Homes: Mortgage Options and Borrower Qualifications

This guide covers modular homes. We will answer the question of can you get a mortgage on modular homes? Yes, if you qualify, you can get a mortgage for a modular home through conventional, FHA, VA, USDA, or construction-to-permanent loans, as long as the home meets the requirements for your chosen loan program.

When financing modular homes, it’s important to know how it differs from other property types. Modular homes are built in a factory, then assembled on site and permanently attached, in accordance with state and local building codes.

To get approved for a mortgage, lenders will look at your credit, available funds, how you plan to use the home, and the results of the appraisal.

What is a Modular Home?

Modular homes are made in sections, called modules, at a factory. These sections are then transported to your property and put together to form the finished home. Even though most homes are built in a factory, a true modular home is not the same as a HUD Code manufactured home. Fannie Mae requires modular homes to be built in accordance with the International Residential Code, as administered by the appropriate state agency, and to meet local building code requirements. Once a modular home is legally classified and set on its own foundation, it can look and function just like a site-built home.

How Are Modular Homes Made?

Instead of building the entire house on-site, modular home companies manufacture the main parts in a factory.

Modular Sections Can Be:

• *built* walls, *built* floors, *built* ceilings, plumbing, electrical, kitchens, bathrooms, built interior finishes
• The modules are delivered to the building site and put together on a prepared foundation.
• Finishing work on the house may include completing an *built* connection for utilities, finishing exterior work, building a deck or porch, finishing a garage, and completing the landscaping.

Are Modular Homes Real Estate?

In most cases, if a modular home is used as collateral for a mortgage, it should be considered real property and built on the site. For Fannie Mae financing, it needs to be classified as real property and *built* to local codes. It also needs to be permanently *built* on a foundation. This matters because if a listing says “manufactured/modular,” the terms are not synonymous and should not be treated as such. Manufactured homes can make this type of construction confusing. Though both may be factory-built, modular and manufactured homes have different requirements.

Modular Homes

Modular homes are built in sections at a factory. After the sections are ready, they are moved to the site and installed as real property. When set up this way, lenders usually treat modular homes the same as site-built homes. According to Fannie Mae, modular, prefabricated, panelized, and sectional housing are not manufactured housing and are afforded the same consideration as site-built properties. Freddie Mac also classifies modular homes as constructed on-site and different from manufactured homes.

Manufactured Homes

Construction of a manufactured home is regulated by the federal HUD Manufactured Home Construction and Safety Standards, not the state or local residential building code that applies to modular construction. HUD states that all manufactured homes built in the United States after June 15, 1976, must comply with federal manufactured home standards and include a certification label or a HUD tag.  Because of these differences, getting a loan for a manufactured home involves extra steps that are not needed for a true modular home.

Do Not Rely on the MLS Description

The Phrase “Modular” Can Have Several Other Meanings:

• Manufactured
• Mobile
• Prefabricated
• Factory built
• Modular/Manufactured

For mortgage purposes, these labels do not make a difference. Your lender, an appraiser, title company, local building department, and what construction documentation (if any) is available will have to determine the true nature of the property. You should choose a mortgage program only after you know exactly what type of property you have.

Can You Get a Mortgage on a Modular Home?

Yes, there are several financing options for modular homes if you qualify.

These Financing Options Include:

• Conventional mortgages
• FHA loans
• VA loans
• USDA Loans
• Construction-to-Permanent loans
• Certain jumbo mortgage programs
• Certain Non-QM mortgage programs

The Loan Program You Choose Will Depend On:

1. Whether you are purchasing a completed modular home
2. If you are constructing a new modular home
3. Whether you are purchasing land and constructing a modular home
4. Whether you are refinancing a modular home

Financing works differently if the modular home is already finished versus if it still needs to be built, delivered, and set up.

Conventional Loans for Modular Homes

Conventional loans are often the easiest way to buy an existing modular home that meets the required standards. Fannie Mae states that qualifying modular, prefabricated, panelized, and sectional houses are treated the same as site-built houses. This is important because many people believe that any home built in a factory must follow manufactured-home loan rules, but that’s not the case. That’s not correct.

Fannie Mae Modular Home Guidelines

For a Modular Home to Satisfy Fannie Mae’s Criteria for Factory-Built Housing, the Property Must Generally:

• Have characteristics similar to site-built housing
• Have a classification of real property.
• Comply with relevant local building codes.
• Be permanently affixed to an appropriate foundation.
• Be part of a valid first-lien real property transaction.

Fannie Mae will not establish specific minimum requirements for the size, width, or roof pitch of a modular home, given the nature of its construction.

Freddie Mac Modular Home Financing

Freddie Mac differentiates modular homes from HUD Code manufactured housing. Its written guidelines state that, for financing purposes, modular homes built to state or local building codes, rather than to manufactured housing standards, are generally treated as site-built single-family homes.  You’ll still need to meet all the usual requirements for a conventional mortgage, like credit, income, assets, debt-to-income ratio, occupancy, and underwriting.

FHA Loans for Modular Homes

You can get an FHA-insured mortgage for a modular home if the property is approved. The critical issue is confirming that the property is a modular home, not a manufactured home, as defined and treated under manufactured-home guidelines. FHA loans are made by private lenders and are insured by the Federal Housing Administration. According to HUD, qualified borrowers can have a down payment as low as 3.5% with FHA purchase financing.

FHA Modular Home Requirements

Borrowers must meet all FHA requirements, and the property must meet them as well.

Various Factors That Can Be Reviewed Include:

• Credit history
• Qualifying income
• Debt-to-income ratio
• Funds
• Value
• Condition
• Occupancy
• The final decision depends on your full application and documentation on file.

Even with a low down payment, not every borrower or modular home will qualify.

FHA Appraisal on a Modular Home

An FHA appraisal checks if the property meets FHA standards and has enough value to secure the loan. The appraiser must also identify the correct construction type. If it’s unclear whether the home is modular or manufactured, you’ll need to provide more records before the loan can be approved.

VA Loans for Modular Homes

Eligible veterans, active-duty service members, and some surviving spouses can use VA loans to buy modular homes.

VA Home Loans

The Department of Veterans Affairs (VA) notes that its home loan program allows qualifying members to purchase, construct, repair, retain, or adapt a home to their personal use. VA loans typically do not require a down payment, but certain conditions or lender policies may require one. (Benefits)

What VA Borrowers Should Expect

The Loan Application and Financing Process for Purchasing Modular Homes May Require a Review of:

• Certificate of Eligibility
• Income
• Credit history
• Debts
• VA residual income
• Occupancy
• Value and condition of the home
• Applicable Minimum Property Requirements
• The subject property also requires a VA valuation.
• If you plan to build a modular home instead of buying one that’s already finished, talk to your lender about construction financing before you sign any contracts.
• Mortgage lenders can help with all types of VA construction loans.

USDA Loans for Modular Homes

USDA loans can be a good choice if you want to buy a modular home in a qualifying rural area, since they may offer better terms. USDA Rural Development considers modular homes an eligible property type for its Single Family Housing Guaranteed Loan program.  If you qualify, USDA loans can cover 100% of the cost, so you won’t need a down payment as long as you meet all the program rules.

USDA Modular Home Requirements

The USDA Guaranteed Loan Program Requires:

• An eligible borrower
• An eligible property location
• An eligible property
• The property is to be the borrower’s residence.
• The borrower’s household must have income below the program limits.
• An acceptable repayment ability

The USDA states that, on average, household income cannot exceed 115% of the area median income for the Guaranteed Loan Program. So, make sure the property’s location is USDA-eligible before assuming you can get this type of loan.

USDA Construction-to-Permanent Loans

Additionally, USDA indicates that construction-to-permanent loans are available through certain lenders. USDA specifically lists modular buildings as eligible structures and maintains information on participating lenders in its single-close construction program.  This means you can build your modular home and secure permanent financing in a single loan, instead of separate loans for construction and the finished home.

Construction-to-Permanent Loans for New Modular Homes

It’s usually easier to get a loan for an existing modular home than to finance building a new one.

Building a New Modular Home Involves:

• Purchasing the lot
• Preparing the site
• Foundation work
• Manufacturing the modules
• Transportation
• Crane rental and module installation
• Connection to utilities
• Plumbing and septic work
• Well or municipal water
• Driveway and garage construction
• Building decks and porches
• Landscaping
• Inspections
• Occupancy permit

Construction-to-permanent loans can be a better fit than regular purchase loans for building a new modular home. Fannie Mae, Freddie Mac, and the USDA offer construction-to-permanent loans. Depending on your needs, we may be able to offer a construction-to-permanent loan with a single closing that combines both construction and permanent financing. Freddie Mac offers similar programs.

The Single-Close Construction Loan Offered Through the USDA is an Alternative Program

A different option is a two-closing construction loan: a temporary loan to finance construction, followed by a permanent loan to pay off the construction financing upon completion.

Fannie Mae, Freddie Mac, and the USDA Offer Single-Close and Two-Closing Loans

The best loan for you will depend on your builder, who owns the land, your budget, and which loan programs you qualify for.

Modular Homes and Local Building Codes

Local building codes must also be followed when building a modular home. To meet Fannie Mae requirements, modular homes must comply with applicable building codes and be permanently affixed to a foundation built in accordance with local requirements and building code recommendations, where applicable. This is not the same as requiring each modular home to meet the federal permanent foundation requirements applicable to manufactured housing.

The Foundation

Having a proper foundation shows that the home is a permanent part of the property.

Underwriters May Review the Following:

• Permits
• Occupancy certificates
• Inspection reports
• Builder documents
• Foundation information
• Appraisal reports
• Title documents

The documents you need will depend on your property and the type of loan you’re getting.

Is a Special Foundation Inspection Required for Modular Homes?

A special foundation inspection is not required just because the home is modular. Once again, the distinction between modular and manufactured housing is blurred.

In some instances, manufactured-home transactions require foundation documentation and engineering certifications that meet the loan program’s standards.

A true modular home, when treated as a site-built house, shouldn’t have to meet the extra requirements for manufactured homes. However, if there are questions about how the home was built, its foundation, any additions, permits, or how it’s classified, the underwriter or appraiser may ask for more information.

The Appraisal of a Modular Home

Most modular homes need an appraisal, depending on the loan program.

When Appraising a Modular Home, an Appraiser Looks at Factors Such As:

• Site
• Design
• Quality
• Condition
• Amenities
• Marketability
• Comparable sales
• Overall market value

Some people think that an appraisal for a modular home must use other modular homes as comparisons. Fannie Mae would disagree. For appraisals of modular, panelized, sectional, and prefabricated housing, Fannie Mae requires an appraiser to use comparable sales that are the same factory-built construction type. This is not required. The appraiser must use the best comparable sales to support the value.

What Happens if There are no Comparable Modular Home Sales Nearby?

This doesn’t mean the property can’t qualify for a loan. The appraiser just needs to explain which sales are the best comparisons and what the key differences are. Fannie Mae considers comparable sales from competing market areas when justified and supported.  So, not having a nearby modular home sale doesn’t mean you can’t get a conventional mortgage.

When Buying a Modular Home, What Do You Need to Qualify for a Mortgage?

If the property is a qualified modular home, you’ll need to meet the requirements for the mortgage program you choose.

Underwriters Will Review the:

• Credit Report
• Underwriters also review the credit reports to check on the borrower’s credit history.
• Things like late payments, collections, charge-offs, bankruptcy, foreclosure, high credit card balances, or new credit accounts can affect your loan approval.
• How much these issues matter depends on the loan program and other factors besides your credit.
• You’ll need to show proof of your income to qualify.

Qualifying Income May Come from Various Sources, Including, But Not Limited to:

• W-2 employment income
• Self-employment income
• Retirement income
• Social Security income
• Pension income
• Income from disability
• Income from rent
• Any other eligible documented income

There may be different rules for different types of income. Debt-to-Income Ratio The debt-to-income ratio compares your monthly debt payments to your monthly gross income.

Common Examples of Debt Obligations May Include:

• Mortgage
• Auto loans
• Student loans
• Credit card payments
• Personal loans
• Child support
• Alimony (where applicable)
• Other obligations

There isn’t a single debt-to-income limit for all modular home loans. Approval depends on the loan program, the results of automated underwriting, other strengths in your application, and the lender’s rules.

Assets and Funds to Close

You May Need to Have Money Set Aside for:

• Down payment
• Closing costs
• Prepaid expenses
• Escrow deposits
• Costs of construction
• Reserve
• Gift funds and other eligible sources.
• You can use gift money or other approved sources, as long as you document them according to the loan program’s rules.

Modular Home vs. Building a New Modular Home

It’s not a good idea to treat buying and building a modular home as the same thing. If the modular home is complete, legally established as real property, and permanently installed, financing may be similar to that for a traditional home.

When Evaluating a Loan Request, a Lender Will Mostly Consider the Following:

• The borrower
• The title
• The appraisal
• The property
• Insurance
• The loan program

Building a New Modular Home

There are additional considerations when building a new modular home.

The Lender May Need to Examine the Following:

• The builder
• The manufacturer of the modular home
• The building contract
• The plans and specifications
• The cost breakdown
• Lot ownership
• Building permits
• The draw schedule
• The construction schedule
• Appraisal for the plans and specifications
• Completion inspections
• Certificate of Occupancy

Get financing advice before you pay any non-refundable deposits to the builder or manufacturer.

What Documentation Can Support a Modular Home Claim?

Having the right documents for your home’s construction can help you avoid delays.

Some Documentation May Include the Following:

• The state issued a permit for modular housing.
• The construction permits
• The certificate of occupancy
• Local records
• Local building department records
• Construction drawings
• Records of the appraisal
• Title documentation

The documents you need for a modular home can vary by state, since modular homes follow state and local codes rather than HUD codes for manufactured homes. Even if a home is listed as “manufactured” in the MLS, don’t assume that’s the actual type of home. Ask your lender to check how the home was built to see if it qualifies for a loan.

Typical Issues with Financing Modular Homes

Financing modular homes usually isn’t a problem. Most issues happen when the property or the details of the deal are misidentified. The process for a manufactured home is different from that for a site-built home. You should verify the construction classification as soon as possible. The MLS describes the Property as Something it is not. MLS descriptions are just for marketing and aren’t used as official documents for loan approval.

Missing Permits or Records

If records are missing, the underwriter may have questions about the home’s legal status, any additions, the foundation, or how the home was built.

The Property Has Illegal Additions

Garages, decks, rooms, or porches that don’t have permits can cause problems with the appraisal, the loan approval, or both.

The Manufactured Home Was Not Financed Prior to Being Ordered

A permanent mortgage doesn’t guarantee that the manufacturer, contractor, or site developer will get paid when needed. Be sure to arrange your financing before you schedule the construction of your home.

The Lender Is Treating Your Home As Manufactured Housing

Ask why. Some lenders may have evidence establishing manufactured housing. Other times, it could be a simple classification error. Don’t rely on assumptions to figure out the home’s classification.

How to Buy A Modular Home Using a Mortgage

Start planning your financing early, before you sign a contract to buy a home.

1. Get A Pre-Approved Mortgage

A Lender Must Perform a Thorough Assessment of Your:

• Income
• Credit
• Debts
• Assets
• Employment
• Desired Monthly Payment

Loan-Program Options

1. Decide If You Are Buying or Building

The financing process differs between buying and building a modular home.

Confirm the Property Type

Determine the Type of Property the House is:

• Modular
• Manufactured
• Mobile
• Panelized
• Prefabricated
• Site Built

Don’t rely on advertising terms to figure out what kind of home you’re buying.

Verify the Loan Program

Discuss conventional, FHA, VA, USDA, construction-to-permanent, or other financing that may be applicable.

Analyze the Land

For New Construction, Find Out:

• The landowner (as this may be the builder)
• Existing land loan
• Availability of utilities
• Land use and zoning
• Adequate access
• Needed well and septic systems.

Analyze the Builder and Construction Contract

Your lender might need to approve the builder and review the construction contract before you can close on the loan.

Complete the Appraisal

For an existing property, the appraiser assesses the completed house. For new construction, valuation may initially rely on plans, specifications, site information, and the improvements.

Complete Underwriting

The underwriter assesses the prospective buyer and the property. Final approval is subject to meeting all underwriting criteria.

Complete Construction or Property Conditions

For construction financing, required inspections and draw procedures occur as the project progresses.

Close or Complete the Transition to Permanent Financing

How the deal is structured will determine what the closing process looks like. This could mean a regular closing for a home purchase, a single closing for a construction loan, or multiple closings for a construction project. The county records and building documentation indicate that the subject property was constructed as a modular home in compliance with applicable state and local building requirements. The buyer applies for conventional financing.

The Lender Will Review the Following Items to Determine the Buyer’s Eligibility:

• Employment
• Income
• Credit
• Monthly debt obligations
• Assets
• Purchase contract
• Property Appraisal
• Title
• Homeowners Insurance

The appraiser finds adequate market support for the home’s valuation, despite not all of the comparable sales being modular homes. If you meet the loan requirements and the property meets the guidelines, the process is much like getting a loan for a site-built home. This is just an example and doesn’t guarantee you’ll be approved for a mortgage.

How to Improve Your Chances of a Smooth Modular Home Closing

The most important step is making sure you know the home’s correct classification from the start.

Prior to Making a Non-refundable Commitment:

• Get pre-approved
• Inform the lender that it is a modular home.
• Determine the completion status.
• Provide the property address if available.
• Provide the building documentation if available.
• Verify the foundation and legal classification of the property.
• Determine Zoning
• Assess the land
• Confirm Utilities
• Determine the appraisal requirements.
• Confirm if construction financing will be needed.
• Avoid any new jobs or any significant new debt while underwriting is ongoing.

It can be very frustrating if your mortgage closing is delayed or your loan program has to change because the property was misclassified.

Modular Homes Frequently Asked Questions

Final Conclusions on Modular Houses and Mortgage Finance

Modular homes are eligible for most of the same Mortgage programs as traditional homes. The most vital consideration is ensuring the property is, in fact, modular. A modular home should not be treated as manufactured housing simply because it was built in sections in a factory.

Fannie Mae treats qualifying modular housing the same as site-built housing, and Freddie Mac also mentions that, for financing purposes, modular homes are treated as site-built single-family homes.

Homebuyers may be eligible for traditional, FHA, VA, and USDA financing, as well as construction-to-permanent loans. USDA grants recognition of modular homes for property eligibility. The construction-to-permanent options offered by Fannie Mae and Freddie Mac can facilitate financing for new builds when the program’s conditions are met. It’s smart to secure your financing for a modular home before you sign a contract or make a large non-refundable deposit. The mortgage team at Gustan Cho Associates will assess the proposed loan program and the necessary financing for the home’s construction within the program’s limits and guidelines.