RTM_Home_Mortgage

Financing Modular, Manufactured, Mobile and RTM Homes

Considerations for Financing

Financing factory-built houses depends on a number of variables, with the most important being whether you are situating the house on land you own, or land you lease such as in a Land Lease Community (a.k.a. mobile home park). When you own or will own the land, there are many competitive mortgage lending options. For leased land, the lending options are fewer, generally more expensive, and currently unavailable though mortgage brokers.

Your financing options will depend on:

  • Foundation type - is the home sitting on a foundation considered temporary, such as wooden blocks, or a more permanent foundation such as a cement basement, or cement footing? While the CSA z240.10.1 installation standard speaks to various acceptable foundation methods, it is important to understand that lenders have their own rule books. Many lenders require the home be fixed to a permanent foundation (not blocked).
  • Land ownership - is the home on leased or owned land? Lenders can put a "mortgage" on land that you own via the Land Titles Registry, or if you don't own the land a "chattel loan" is registered in the Personal Property Registry. Homes without land tend to depreciate rather than appreciate in value, which makes them more risky for lenders hence more expensive to finance.  From a lender's point of view on any property they finance, their primary concern (risk) is, if they have to foreclose, will they be able to 1) sell the property quickly, and 2) get all their money back.
  • Age and condition of home - for resale financing, lenders look at the Remaining Economic Life (REL) of all homes (site- or factory-built) before they agree to finance them. The general rule is, the maximum amortization available for a loan is it's REL less 5 years. So the newer the home, the easier it is to finance. Manufactured homes on steel frames (mobile homes) are perceived to depreciate much faster than other homes, and in that regard old mobiles in particular are extremely hard to finance, often with higher payments. Yes, today's building standards for mobile homes are much higher than homes built pre-1992. However, in the absence of an appraisal or information indicating otherwise, the REL on a mobile home will be deemed by most lenders and CMHC to be 40 years less its age.  A reduced amortization period serves to increase the required monthly payment because the lender wants the home fully repaid while it still retains its value. This is a bit of a catch-22 where land is involved because the real value is retained in the land, not the home. A challenge for the re-sale home market, mobile or otherwise, is the that the maximum amortization (REL) rules and calculations drive the resale value of the homes. If a buyer can't afford a higher monthly payment then the only other thing to give is to reduce the total loan amount available. Less available bank money means lower purchase price offers. 
  • Type of home construction - is the home construction considered modular, manufactured(mobile) or RTM (see discussion bottom of page, each with different characteristics). Homes without steel frames get treated more like site-built homes.
  • New or existing home - if you are moving the home soon to your location, and you need money first to acquire the land and/or for the foundation, you may need a special construction / progress advance mortgage for this situation, which we have.
  • Down payment - as with many mortgages, when your down payment is less than 20% down, there are CMHC lending rules and requirements to meet, while 20% or above is considered conventional financing. Different rule books mean you might be more easily approved with one program vs another other. 

For all intents and purposes, if the land is owned, the home is or will be on a permanent foundation with full utility connections, its in good condition, and in an acceptable location, then the "normal" lending rules apply. If the home is also on an acreage, then acreage lending rules will apply too.  If the home is your summer lake property, then cottage lending rules apply also, etc. 

Under the Canadian lending current rules, a borrower can no longer refinance a CMHC-insured loan. Most lenders require CMHC insurance for rural communities and certainly I can't think of a single bank lender who would lend on a mobile home in a park wthout CMHC insurance.

Contact us and we'll be happy to clear up any confusion and spell out your options.

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Moving Day Mobile Home Mortgage

Differences between Modular, Manufactured/Mobile and RTM homes 

The distinction and terminology used for the different types of factory-built homes can be confusing for consumers and other industry participants.

Modular home:
Modular homes are houses that are manufactured in sections or modules in a controlled, environmentally protected building centre or factory. The modules are then transported to the home site and permanently affixed together and to the permanent foundation, then the exterior cladding is completed. Once finally assembled, modular homes are essentially indistinguishable from typical site-built homes. If the home is CSA a277-certified, it means that the quality control procedures have been followed at the factory and that the home complies with the same building codes that would apply to a site-built home at the same final destination. CSA a277 is expected for mortgage financing.

Manufactured (Mobile) home:
Manufactured homes are one-story self-contained homes built on a steel frame, manufactured on either one or two sections (single-wide or double-wide), and assigned a serial number. They are movable from one location to another, then either placed on a foundation such as blocked wood and anchored to the ground, or more permanently placed on a foundation of drilled concrete piers, poured concrete pedestal, concrete block pedestal or anchored steel piles. Once on the foundation, the home is skirted. In the absence of an overriding CSA a277 factory certification program, mobile homes must be built to the CSA z240 MH building code standard. Some jurisdictions, such as Alberta, require CSA a277 factory certification regardless. (Check the electrical panel door for a compliance sticker.)

RTM (ready to move) home:
RTM homes are houses constructed in one piece in a controlled, environmentally protected building center. Transport of the finished home to the home site then occurs, where it is affixed to a permanent foundation. Once on the foundation, completion of a few outstanding items such as the heating system and stairs must be complete. Check that the construction is CSA a277 certified meaning it meets the local building code. This applies also to tiny homes.

Financial Considerations for Manufactured Homes on Leased Lots

Be clear, when you are leasing the land for your home, there is in fact no real estate, hence no land title to mortgage. The loan is therefore a secured "collateral loan" meaning only the building itself can be seized if you don't pay the loan, similar to a vehicle repossession. Interest rates will generally be 2-3% higher than a mortgage involving real estate. There may be alternative ways of financing these properties where other real estate can be used as security instead.  

Land Lease Communities (Mobile Home Parks) and Mortgages

Often buyers are often attracted to manufactured homes in land lease communities for a variety of reasons. Factors like less yard maintenance, more personal space than an apartment, ownership benefits vs renting, location, and enhanced security in a gated community can be attractive. Some also perceive the lower price as an easier way to get into the housing market relative to the financing requirements for a traditional home on an owned-lot.

In terms of finance, in addition to the monthly loan payment on the home, you will also have a monthly lot rent payment to the park management perhaps in the order of $400-$500/month or more. Similar to a condo-fee or a home-owner-association fee, lenders will combine the loan and lot rent payments to calculate what you can afford for a loan approval. So in terms of affordability, a lender will view a $600/mo home payment plus a $400 lot rent payment as essentially equivalent to a $1000/mo mortgage payment on a house, as an example.

If you are considering a manufactured home in a land lease community simply because of a perceived lower price, let's compare that to a mortgage payment on a small house and to the concept of investment in general. Consider this:

  • $400-$500/month saved on lot rent would allow you to borrow a further $100K on a traditional home at today's rates in mid 2017.
  • Interest rates on leased-lot homes are generally 2 to 3% higher than house mortgages. This difference equates to a reduction in maximum loan approval amount by a further $25K vs a traditional home.
  • In short, apples-to-apples and in the same ballpark, a $250K mortgage on traditional home will have the same monthly payment as a ~$125K mobile home loan + $450 in lot rent.
  • In terms of down payment, the mobile home is half the price so half the required down payment. At 5% down, $13K required for the traditional home vs $6.5K for the leased-lot home, so mobile home down payment is easier to come up with.
  • In terms of property value appreciation, usually it is the land which appreciates in value and the land-owner that benefits in that regard. Homes themselves generally depreciate, and rate of depreciation depends on factors like maintenance, location, neighborhood, desirability, and economic conditions.
  • If a purchase has the potential to appreciate at a rate of 4 to 5% per year, in 15 years the property will be worth twice what you paid. Conversely, if your purchase will more likely depreciate and at a similar rate, it will be worth half of what you paid in 15 years. As an "investment," it is important to understand the difference between the potential of the land vs home to appreciate in value.
  • Money paid towards your loan principal accrues to your benefit. Money paid towards interest and lot rent accrues to the benefit of the bank or land-owner.
  • As mobile homes without land become older, they become harder and harder to finance for the reasons stated.

If you are considering a mobile home in a park because you think it is cheaper, please contact us for a full evaluation. The results might surprise you.

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