Can You Get A Home Equity Loan On A Manufactured Home?

A manufactured home can be an affordable option for home buyers, but what about current owners, who want to pull cash out for other purposes? Rocket Mortgage^® doesn’t offer home equity loans on manufactured housing at this time, but there are other ways to get one. There is also a cash-out refinance alternative.

Why Take Out A Home Equity Loan On A Manufactured Home?

You might wish to access your home equity for the purpose of making home improvements and consolidating debt. If you have a low enough rate on your primary mortgage, you might wish to avoid refinancing to current rates, which may be higher. Instead, a home equity loan would enable you to take out a second mortgage while accessing existing equity.

A home equity loan is a second mortgage in which you’re given a lump sum, much like a cash-out refinance. The key difference is because it’s a second mortgage, you don’t have to touch the rate on your primary mortgage. How much you can borrow will be based on lender limits, your property value and the amount of equity you have in your home after accounting for both loans. Only the amount you borrow on your home equity loan will be charged the new rate.

Home Equity Loans For Manufactured Homes: What To Consider

If you’re considering a home equity loan related to your manufactured home, there are several factors you should consider. Some may impact whether any form of traditional mortgage, whether primary or second, is even possible. Others determine if the home equity loan will meet your goals.

Age of Your Home

To most borrowers, manufactured homes and mobile homes are synonymous. However, in the eyes of the law and building code enforcement, these are two very different things.

Mobile homes are all those built prior to June 15, 1976. On that date, stringent federal quality and safety standards went into effect, under the enforcement of the Department of Housing and Urban Development (HUD).

Any home built under the new standards is considered a manufactured home. Homes built after this date will have a HUD tag. If your tag is worn or missing, you can work with your lender to order replacement paperwork.

To qualify for traditional financing, your loan must be for a “manufactured home.” Mobile home financing is typically only offered by specialized lenders.

Permanent Foundation

Most lenders are going to require that your home be affixed to a permanent foundation on the land on which it sits. This means that the chassis has to be removed. The foundation is looked at as part of the appraisal process. The FHA also has specific standards regarding the condition of the foundation.

If your permanent foundation doesn’t meet basic standards or your you lack one altogether, you may have to get a chattel loan (one for personal property) from a specialized lender.

Land Ownership

Lenders usually require that you own the land on which the manufactured home sits. You can’t be renting space in a court or trailer park. This is because much of the real value in real estate is tied to the land itself. Land is the scarce resource. Lenders can’t recoup their investment if you default, and the home is worth less than when you bought it.

If you don’t own the land underneath, the home itself is just getting older over time, with the potential for more things to break and need maintenance. Manufactured homes not tied to land often depreciate as a car would. Homes on owned land tend to increase in value.

Amount Of Home Equity

When applying for a home equity loan, the amount you can borrow is a function both of the value of your home and the percentage of equity you still have in your home after both loans are accounted for. Many lenders will allow you to borrow up to a maximum of 90% of your home’s value. Let’s do a quick example to see what that looks like in practice.

Your home has been valued at $350,000 and you owe $200,000 on your primary mortgage. First, multiplying $350,000 by 0.9 gives you $315,000. Subtracting your current $200,000 balance gives you a maximum home equity loan amount of $115,000. It’s important to know that the amount you’re able to borrow will cover whatever you have planned for the money.

Blended Rate

You might be asking yourself how you know whether a cash-out refinance or a home equity loan is right for you. This is where an experienced Home Loan Expert can help you with a math equation. Basically, a weighted average is taken based on the balances of your first and second mortgage along with the interest rates.

If, after doing the math, it comes out to be cheaper to do a cash-out refinance based on the blended rate being higher, you do a cash-out refi. Otherwise, a home equity loan would be the best option.

How To Get A Home Equity Loan On A Manufactured Home

If you’re looking to apply for a home equity loan for your manufactured home, there are several steps to the process.

1. Collect The Necessary Documents

As with other loans, lenders will want to review your income and assets in addition to pulling your credit report and score. Given this, you’ll want to have the following available:

• 2 years’ W-2s/1099s
• 2 years’ tax returns
• Last 2 months of statements for any accounts used to qualify
• Last two pay stubs

Beyond this, if you have records substituting for a HUD tag or documentation of a prior foundation inspection, gathering these now should speed up the process down the line.

2. Review Other Loan Requirements

In addition to gathering documents, you’ll want to know what you can qualify for. Most lenders will require a higher score for a home equity loan than something like a cash-out refi because it’s based upon a second lien. Although every lender will have different requirements, a 680 minimum FICO^® Score is a good target. Higher scores will get you better terms.

You will also want to be mindful of your debt-to-income ratio (DTI). For the best chance of qualifying for the most options, you’ll want to keep your DTI under 43%

3. Submit The Loan Application

Once you have all the documentation and you’ve reviewed the requirements, it’s a matter of filling out the paperwork and sending it all into a lender. If you decide to move forward at this point, your lender may charge a deposit in order to have the funds to kickoff the rest of the process. You’ll also receive a Loan Estimate, allowing you to compare costs when shopping.

4. Get A Home Appraisal

A home appraisal determines the value of your property, which is key in figuring out how much you can borrow. As mentioned earlier, even the most qualified borrowers typically still have to leave at least 10% equity in their home after accounting for both loans. There’s also a basic health and safety component, so you may have to fix certain problems before you close.

A home appraisal has traditionally involved someone coming out and doing an interior and exterior inspection. While these are still done, desktop, hybrid and drive-by appraisals are increasingly becoming more common as more data is available online.

5. Underwriting And Closing The Loan

While your appraisal is happening, final underwriting checks will also be completed. In order to avoid closing delays, promptly respond to your lender’s requests for information.

When it comes time to close, bring your Closing Disclosure, photo ID and any applicable closing costs. Your lender will have a list of what you need to bring. There is a right of rescission associated with home equity loans and refinances, so there’s a 3-day waiting period before you receive the funds.

6. Use Funds From The Home Equity Loan

Once you get the proceeds from your home equity loan, you can use them for whatever you want. Commonly, these are good for debt consolidation because loans secured by your home charge lower interest than personal loans or credit cards. You might also use the money for major home improvement projects like remodels or additions.

Manufactured Home Equity Loan Alternatives

Getting a home equity loan on your manufactured home can be a good option, but it’s not the only one. Let’s briefly discuss some other alternatives:

• Cash-out refinance: A cash-out refinance involves taking out a big loan on your primary mortgage rather than a second loan on your home. This involves a lower rate than a home equity loan because it’s based on the primary mortgage. But whether it makes sense depends on the math compared to keeping your current first mortgage and going with a home equity loan or home equity line of credit (HELOC).
• HELOC: A HELOC is a second mortgage, but rather than being a lump-sum payout, it’s a line of credit. You’re only required to pay interest on what you take out during the draw period, but you can put money back in to be used for future projects. Once the repayment period starts, the balance freezes for the rest of the term and payments include both principal and interest.
• Personal loan: A personal loan isn’t tied to your home at all but based solely on your personal credit rating. Because it’s an unsecured loan, it tends to have more stringent requirements. The interest rate is slightly higher as well, but nothing like credit cards, so this can still be good for home improvements and debt consolidation, particularly for mobile homes where traditional financing may not work. If a personal loan makes more sense for your financial goals, you can apply with our friends at Rocket Loans^SM.

Home Equity Loans On Manufactured Homes: FAQs

Having touched on the basics, let’s get into a few more detailed questions.

What credit score do I need to qualify for a manufactured home equity loan?

You want your credit score to be as high as possible to secure the best terms. However, you’ll typically see home equity loans for manufactured homes with a minimum credit score of at least 680. These loans can be riskier for lenders because in the event that you default, the lender for your primary mortgage gets paid first in a foreclosure sale.

Should I use a home equity loan or HELOC on a manufactured home?

Using a home equity loan or HELOC depends on how you plan to utilize the funds. If you have a debt consolidation or home improvement opportunity that you know you need a specific amount for, a home equity loan could be the way to go. A HELOC might allow you to pull funds from the credit line during the draw period multiple times that you can then put back and use later.

What can I do if I don’t qualify for a home equity loan on my manufactured home?

This depends on why you don’t qualify. If it’s to do with credit, you can work to build that score up by making on-time payments and steadily paying down debt. If you can’t qualify because your home is a mobile home or not titled with your land, you could look at a personal loan or one for chattel.

The Bottom Line

It’s possible to get a home equity loan on a manufactured home, but whether it makes sense to go this way or the cash-out refinance route all comes down to math. Either way, home equity can be used for home improvement projects and to consolidate debt, among numerous possibilities. In most cases, you’ll need to own your land and be on a permanent foundation.

While Rocket Mortgage doesn’t offer home equity loans on manufactured homes, we can help you look into a cash-out refinance. If you decide to go this direction, apply online.