Manufactured homes, a modern form of low-cost housing, offer an affordable path to homeownership for millions. However, accessing safe and affordable financing remains a significant challenge for many buyers. This issue is exacerbated by the prevalence of risky alternative financing methods, particularly contract financing, which lacks robust consumer protections. A recent survey conducted by The Pew Charitable Trusts highlights the disparities in financing options between manufactured homes and traditional site-built homes, revealing opportunities for policymakers to improve access to safer credit options.
The financing landscape for manufactured homes differs markedly from that of site-built homes. Buyers often face difficulties securing traditional mortgages or home-only loans due to how their properties are titled—whether as personal property or real estate. When a manufactured home is titled as personal property, it becomes ineligible for mortgages, leading many buyers to resort to alternative financing methods such as contract financing. This type of arrangement, privately agreed upon between buyer and seller, does not transfer legal ownership until the final payment is made, leaving borrowers vulnerable to various risks.
In states where laws governing these arrangements vary widely, less than half of manufactured home borrowers use mortgages, while a substantial portion relies on contract financing. The survey found that 20% of manufactured home buyers use some form of contract financing, totaling over half a million Americans. This figure is significantly higher among those whose homes are titled as personal property (28%) compared to those titled as real estate (12%). In contrast, only 5% of buyers of site-built homes use contract financing.
Borrowers' land ownership status and titling arrangements greatly influence their ability to obtain safe and affordable financing. For instance, 76% of current manufactured home borrowers own both their home and land, potentially qualifying them for mortgages if their property were titled as real estate. Yet, one-third of this group still titles their home as personal property, rendering them ineligible for mortgages. This discrepancy highlights the need for policy changes to address titling challenges and expand access to traditional lending.
Despite concerns about delinquency and default rates, the survey revealed that 89% of borrowers are current on their loan payments, with only 4% reporting being three months or more behind. These findings suggest that manufactured home borrowers pose relatively low credit risk, offering policymakers opportunities to enhance access to safer financing options. Federal programs, such as those provided by FHA, USDA, VA, and GSEs, can play a crucial role in expanding mortgage and home-only loan availability for manufactured home buyers.
To ensure broader access to safe and affordable financing, policymakers should consider aligning standards for home-only loans with those for mortgages and authorizing new home-only loan financing programs. Additionally, strengthening consumer protections for contract financing is essential. Policymakers must ensure that contracts are publicly recorded and clarify whether contract borrowers are covered by landlord-tenant laws or homeowner laws. By addressing these issues, federal and state lawmakers can provide greater protection for contract borrowers and expand the availability of safe, affordable credit for manufactured home buyers.
In conclusion, manufactured homes present a viable option for affordable homeownership. However, the lack of safe and affordable financing poses a significant barrier for many prospective buyers. Targeted policy actions can help mitigate these challenges, ensuring that manufactured home buyers have access to the same rights and opportunities as any other homeowner. Recent updates to FHA's Title I program and potential new initiatives from federal agencies could pave the way for improved financing options and stronger consumer protections, ultimately enhancing housing stability and affordability for millions of Americans.