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. Please continue reading below the break.
For a leased lot, the lending options are fewer, generally more expensive. If you are looking for a loan for a manufactured/mobile home, a park model home, or a tiny home on a rented/leased lot, sorry to say but - as mortgage brokers - currently, we have NO lending options available unless you own the land. You could try a credit union and ask for a chattel loan.
For owned-lot financing, please continue reading.
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) and the more permanent the foundation is perceived, the better for financing. For an excellent primer on factory-built home foundations from our friends south of the border, see this link.
- Land ownership - is the home on leased land (called "leasehold") or owned-land (called "freehold")? Lenders can put a "mortgage" on freehold lands via the Land Titles Registry, or if you don't own the land a "chattel loan" is registered on the home in the Personal Property Registry. Where the land is owned, the home and land is considered "real property", which tends to appreciate in value over time much more so than personal property on leasehold land. The higher potential to appreciate makes financing real property much less risky for lenders hence lower interest rates are available. 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 manufactured homes are much higher than homes built pre-1992. However, in the absence of an appraisal or information indicating otherwise, the REL on a manufactured mobile home will be deemed by most lenders and CMHC to be 40 years less its age. A reduced amortization period on any property 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. As a normal rule-of-thumb in the mortgage lending world, a buyer interested in residential acreage development needs to have about 1/3rd the total cost-to-complete a project in cash, so $100K for a $300K project. The cash would be required for vacant land down payment (30-50%) as well as the up-front deposits and payments required for the new home factory order, utility servicing, home site preparation, transportation, and setup. Buyer cash requirements vary depending on available credit offered by mortgage lenders, dealer, factory, and trades, but certainly this cash requirement, let alone the project complexity, is prohibitive for many buyers as it relates to developing an acreage with a new RTM home. (Please note: in Alberta and NE BC, we may be able to connect you to a new program that will help you acquire land and install a home of your choice with as little as 5-10% down on your part (OAC). Visit this link for more details.)
- 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.
As it relates to CMHC-insured loans (under 20% down, CLIP loans, and some rural locations regardless), keep in mind that a borrower can no longer refinance the home with a bank lender after the original purchase. So if ever you are in need of accessing the equity in your home (emergency, debt consolidation, improvements, etc.) it might mean you have to sell if you can't get the money elsewhere.
Thinking about how to develop land you own or want to purchase with a new RTM home? Please contact us. For differences between Modular, Manufactured/Mobile and RTM homes, please continue reading below...
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 or deed 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 Financing
Buyers are often attracted to manufactured homes in land lease communities for a variety of reasons. Indeed, factors like less yard maintenance, more personal space than an apartment, ownership benefits such as decorating choices vs limited options when you rent, location, community amenities, and enhanced security in a gated community can all be attractive and excellent reasons to consider a land lease community.
In terms of finance, some buyers also perceive the lower home price as an easier way to get into the housing market relative to the financing requirements for a traditional home on an owned-lot. This will be true as it relates to the required down payment. However, keep in mind that, 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 loan payment plus a $400 lot rent payment as essentially equivalent to a $1000/mo mortgage payment on a house, as an example, so you might want to compare the two options.
PS - If you are looking for a loan for a manufactured/mobile home on a rented/leased lot, sorry to say but currently there are NO leased-land lending options available to mortgage brokers, but you may have some luck at a local credit union if you contact one directly.
If you are trying to finance a Park Model or Tiny Home, you may have some luck with Canadian Financial, who may be able to provide alternative (non-mortgage) lending options.
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