PURCHASING A MANUFACTURED HOME
Manufactured homes provide many people with a less expensive option for home ownership. However, purchasing a manufactured home (MH) has different requirements than purchasing a stick-built house or condo.
Some people dream of buying a piece of land and putting a MH on it. Unfortunately, buildable lots in our area can be very expensive, and lot preparation (clearing, grading, septic design, utilities, etc.) can erode the economical aspect of this type of housing.
While most MHs don't appreciate as much as stick-builts, they are not necessarily a depreciation machine. Those on their own land fare better than those in parks, but maintenance (or lack of) seems to have more impact on long-term value than on similar stick-built housing.
There are three types of MH placement: On its own land, on its own land in a park community, typically regarded as a condominium, and in a park. Let's look at the specifics of each of these scenarios:
"On its own land" is typically a lot or acreage, where there is a permanent foundation and the title has been eliminated (more on that later). This situation is the most similar to a traditional stick-built house. The owner is responsible for the land and property, including utility hookups (either new or existing); since these homes are most often in more rural areas, many have septic tanks and/or well water. These are often priced less than a comparable stick-built home, depending on condition and size of lot, and have the greatest potential for appreciation.
There are some parks that are considered condominiums: The MH is placed on a permanent foundation, title is eliminated, and there are by-laws that all unit owners must follow. The owner actually owns a portion of the park's land, and there may be amenities (clubhouse, sports court, etc.) that are included in that portion of ownership. There are monthly homeowner dues paid to maintain the common areas, and those can run from under $300 for a park with no amenities, to over $500 in those parks that have extensive common features. Often, some utilities (water, garbage, sewer, and/or basic cable) may be included in those dues. Appreciation of units in these types of parks is often good, and the owner can generally do what they wish with their property, within the standards set by the Homeowner?s Association.
The most common occurrence is for a home to be located on rented space in a park. These homes generally sell for under $100,000, and often under $50,000. MHs are considered personal property until a process of title elimination is completed; MHs in this type of park are not considered to have permanent foundations and are therefore not eligible for title elimination. The owner buys the home, but pays space rent for the lot. These rents generally run $400 to $650 per month, and like condo-style parks, may have many or few amenities. Some utilities are usually included in the rent. The owner is free to move the MH out of the park if he/she chooses. It is important to know that, should the park owner decide to sell the land, the owners may be required to relocate their homes, either to another park or individual lots. It does happen occassionally, and owners are given at least twelve month?s notice.
Manufactured homes are considered personal property unless title has been eliminated. For that reason, very few mortgage lenders will lend on them. Even homes in condo-style parks and on their own land can experience financing challenges, but are usually easier than those in rental parks.
The terms for MH financing are substantially different from for stick-built homes. Ten percent down payments are required, the interest rates are higher (often an additional 4%-6%), and the terms range from 10 to 20 years, rather than the common 30 years on stick-builts. How does this translate? Well, let?s look at a couple of examples:
A MH located in a park is priced at $50,000. The buyer had the required 10% down ($5,000), which meant a loan of $45,000. Spread out over 20 years at 10% interest, that's $434 per month principle and interest (P&I), plus the space rent of $500, for a total $934 per month payment. Lenders do not collect taxes and insurance for MHs, so the owner would be responsible for probably another $600 per year. Divide this into twelve months, and your obligation comes to $984 per month.
Now, let?s see what the same buyer might be able to buy in a condo for a similar monthly obligation. They have $5,000 to put down, and let?s say the condo has $175 dues per month, and taxes are going to run $150 per month (which the lender will handle); property insurance is included in the dues, so the buyer will only need insurance on the contents, which is very inexpensive. Those fees add up to $325 per month, which would create $659 available for P&I. For a 30 year fixed rate loan at 6%, that equals a loan of $110,000, plus the $5,000 down, for a purchase price of $115,000.
Granted, a $115,000 condo is likely to be much smaller than a $50,000 MH. However, one must take into account the appreciation values, ease of resale (can be a problem with MHs), and the amount of money spent on interest and dues/rent. In addition, condos are easier to finance and various programs are available that may substantially lower your monthly payments. On the other hand, MHs often offer yards and the sense of detached living; purchasing in a condo-style MH park may offer an excellent compromise. Don't forget, too, that whatever choice you make, closing costs will need to be considered.
Other Significant Points
Manufactured homes may only be moved twice. If they are set up in a park, they can be moved once more, and that would have to be to a permanent location. Be sure to check the history of a MHs moves.
Financing is not available for homes built prior to July 15, 1976, or for single wide homes. Those can only be sold to cash buyers or the seller must carry a sales contract.
Whether parks are space-rent or condo style, some may have age restrictions. "Over 55" or 'Senior" parks require at least one of the tenants in a home to be over age 55. Unless you are eligible for and prefer this kind of environment, be sure the park in which you are interested is "all-age."
Most parks will have some sort of rules regarding pets; be sure to investigate if pet ownership is of concern to you. Most simply require responsible pet ownership (cleaning up, not off leash, etc.), but some may have restrictions on size and/or quantity.
Space rent parks usually require buyers to be approved by park management. In some cases, approval standards are higher than lender standards, and even a fully loan approved buyer may not receive park approval.
The most common structural failure of MHs is the roof. If the roof is more than 10-15 years old, you can probably expect to replace it at a cost of $4,500-$6,000.
I hope this information has been helpful. Manufactured homes are an economical option to home-ownership, but it is important to understand the differences between purchasing a MH and a stick-built home.
Real Estate Broker