As housing prices continue to rise, more buyers are exploring alternative options to traditional homes. Among these alternatives, manufactured homes offer an attractive, cost-effective solution without compromising essential features. Compared to the average price of $348,079 for a conventional home in 2022, the average cost of modern manufactured homes is $82,100, according to January 2023 U.S. Census data.
As more people explore affordable manufactured homes, more questions will arise regarding frequently used words and phrases common to this sector.
In this post, we will introduce manufactured housing financing and explain the key terms associated with it. Whether you’re an investor, homeowner, borrower, or developer, this guide will help you navigate the world of manufactured housing financing.
What is Manufactured Housing?
A manufactured home is built off-site in a factory and transported to the desired location. The foundation is typically made of steel frames, upon which insulation layers are added for thermal protection. Subsequently, the flooring system and plumbing components are installed, with the wooden floor frame and plumbing then being assembled.
It’s important to note that manufactured homes are constructed in compliance with specific building codes and regulations set by the relevant authorities. They are available in various sizes, styles, and designs—ranging from single-section units to larger, multi-section homes.
What is Manufactured Housing Financing?
Manufactured housing financing involves securing funding or loans for purchasing or refinancing a manufactured home or manufactured housing community (MHC).
Various options for financing MHCs include commercial mortgage-backed securities (CMBS) lenders, government-sponsored enterprises like Fannie Mae and Freddie Mac, life insurance companies, and banks.
Manufactured Housing Financing: Manufactured Housing Terms
As an investor looking to join the community of manufactured home investors, here are some important terms you may come across:
Chattel
This is personal, movable property not considered real estate. A manufactured or mobile home is categorized as chattel, and the financing of homes within a land-lease community is generally called chattel financing.
HUD Code Manufactured Housing
HUD-Code manufactured housing refers to factory-built homes that adhere to construction standards established and enforced by the U.S. Department of Housing and Urban Development (HUD). These standards, which include the use of longitudinal steel chassis in the foundation or floor system, are federally preempted and ensure quality and safety in the construction process, providing homeowners with confidence in their home’s structural integrity.
Manufactured Housing Institute
The Manufactured Housing Institute (MHI) is a national trade organization that serves as a representative body for the factory-built housing industry. It comprises members from all sectors within the manufactured and modular housing industries and 50 affiliated state organizations. The institute plays a crucial role in advocating for the interests of the factory-built housing industry and promoting collaboration and growth within the sector.
MHC Finance: Mortgage Terms
Some important mortgage terms you may encounter in manufactured housing financing include,
Commercial Mortgage-Backed Security (CMBS)
CMBS are financial instruments backed by a pool of commercial mortgages serving as collateral. They are typically structured by aggregating individual loans from multiple borrowers with different property types, loan sizes, and geographic locations. These loans are pooled together, and bonds with varying levels of risk and credit ratings are created and offered to investors in the market.
Mortgage-Backed Security
Mortgage-backed securities (MBS) are investment instruments sold by Fannie Mae, Freddie Mac, or other regulated and authorized financial institutions secured by an underlying mortgage. MBS are typically a collection of home loans and other real estate debts purchased from originating banks. Investors who hold mortgage-backed securities receive regular payments similar to bond coupon payments.
Real Estate Mortgage Investment Conduit (REMIC)
This is the legal term to describe the pool of assets, typically mortgages, that serve as collateral for the bonds issued in securitized lending.
Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act)
The SAFE Act was enacted in 2008 to ensure that every state licenses residential mortgage loan originators, providing greater security and fairness in mortgage lending practices.
MHC Finance: Other Terms
Other general real estate terms you may come across while financing a manufactured home include the following:
All-In Rate
The all-in rate is the comprehensive interest rate charged to a borrower on a loan. It comprises the loan’s benchmark rate, such as the 10-year treasury rate, along with the additional spread charged by the lender.
Assumability
A loan that can be transferred to a new borrower without changing the terms or interest rate. This feature enables a borrower to avoid paying a prepayment penalty while selling a property since the loan is being transferred, not paid off. However, an assumption fee typically applies.
Captive Finance Company
A finance company specializing in chattel (personal property) financing—focused on lending for homes in land lease communities on behalf of its affiliated property owner/operator.
Federal Housing Finance Agency (FHFA)
The FHFA is an independent federal agency regulating Fannie Mae, Freddie Mac, and the 11 Federal Home Loan Banks. Its establishment dates back to The Federal Housing Finance Regulatory Reform Act of 2008.
Underwriting Interest Rate Floor
A hypothetical interest rate (not the actual rate paid by the borrower) used during loan underwriting to determine the minimum debt service coverage ratio (DSCR) the lender requires. This approach is often employed when interest rates are low and when sizing loans with shorter terms (less than ten years) and higher loan-to-value (LTV) ratios.
How Can Lument Help You?
Manufactured housing is arguably one of the least standardized types of commercial real estate. That’s why investors require a financial partner with extensive expertise in Fannie Mae and Freddie Mac programs—a partner who can offer the flexibility of financing through its balance sheet to ensure the acquisition or refinancing process yields the most favorable loan terms. At Lument, we specialize in manufactured home community financing, equipped with the requisite knowledge and resources to fulfill these requirements.
As such specialists, we offer various capital solutions to manufactured housing community investors, including Fannie Mae, Freddie Mac, and HUD/FHA loans.
Frequently Asked Questions
What is the Definition of a Manufactured Home Under HMDA?
A manufactured home is any house built on a permanent chassis that can be transported in one or more sections and is designed to be used as a residence. It is constructed in a factory and complies with the construction standards set by the U.S. Department of Housing and Urban Development (HUD).
What is the Difference Between Manufactured and Mobile Homes?
Both manufactured homes and mobile homes fall under the regulation of the Department of Housing and Urban Development (HUD); however, the primary difference between the two lies in the construction date. As per HUD guidelines, a factory-built home constructed before June 15, 1976, is classified as a mobile home, while those built after that date are considered manufactured homes. This distinction signifies the implementation of updated construction standards and regulations for manufactured homes, ensuring enhanced safety and quality.
What is the Abbreviation for a Manufactured Home?
The abbreviation commonly used for a manufactured home in the real estate industry is “MH.”
