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What is a manufactured home, and how do you finance it?

Yahoo Personal Finance· Getty Images
Updated 5 min read

It can be expensive to buy a house, especially as home prices increase. But there is a more affordable path to homeownership: buying a manufactured home.

Building a home in a factory may seem like a strange idea, but that's exactly where manufactured houses are built — and it explains how they get their name.

A manufactured house is produced in a factory-like setting and transported on a permanent chassis to its destination, where it’s hooked up to utilities and made ready for residents to occupy.

Some manufactured homes are placed on land the homeowner owns. Others are placed on land owned by someone else, such as in a manufactured home community containing multiple manufactured houses. When someone else owns the land, that owner may charge the homeowner rent to keep the home on that land — so the owner could end up making payments for both a house loan to their lender and rent to their landlord. Research the cost of rent payments in your area before committing to a manufactured house.

Manufactured homes are often confused with a number of other housing types, such as RVs, "park model" homes, modular homes, and mobile homes and trailers.

In fact, all of these housing types are actually quite different.

  • RVs and park model homes are usually considered to be motor vehicles rather than housing. An RV is a recreational vehicle you can drive from place to place. A park model home is a type of RV designed to be used as temporary housing for activities, such as a campsite or fishing lodge.

  • Like manufactured homes, modular homes are factory-built. But modular homes are subject to the same regional, state, and local government building codes as site-built homes, while manufactured homes must comply with federal government building codes.

  • The terms "mobile home" and "trailer" are often used interchangeably. These terms technically describe manufactured homes built before June 15, 1976, that don't comply with current federal government standards.

Dig deeper: Modular homes versus manufactured homes

Like other types of homes, manufactured homes have benefits and disadvantages.

Affordability. Manufactured homes typically cost less to purchase than houses built on-site. Due to their lower prices, these homes have become an important source of affordable housing, especially in rural communities and lower-income neighborhoods.

Flexibility. Manufactured homes are rarely moved, but moving one is possible, which means you can take it with you if you want to move after buying it. Moving any type of home is difficult and expensive, in part because plumbing and utilities must be detached from the home at its current location and reattached at its new location. Moving a manufactured home can cost thousands of dollars.

Energy efficiency. Manufactured homes can be built or retrofitted to substantially reduce heat loss and improve energy efficiency, according to the U.S. Department of Energy. Examples of energy-efficient improvements include installing efficient windows and doors and adding insulation.

Land lease fees. Manufactured homes placed on land owned by someone other than the homeowner may involve monthly rental or lease fees. Owners of manufactured homes who pay these fees may be at risk of rent hikes or eviction by the land's owner. People who are evicted may have to move their manufactured house or sell it.

Harder to build equity. Manufactured homes on rented or leased land aren't technically considered to be real estate. Instead, they're classified as personal property, and consequently, they may not appreciate in value at the same pace as site-built homes. Over time, manufactured homes may actually depreciate in value. But if you own both the home and the land, you could be in a better position to build equity.

More vulnerable to natural disasters. No home is immune to national disasters, such as fires, floods, earthquakes, or severe weather. Compared to site-built homes, manufactured homes tend to be more at risk of substantial damage. Loss of life due to extreme weather may be significantly higher in this type of home, as well.

Higher interest rates. Loans for manufactured homes typically charge higher rates than other types of home loans.

Getting a loan to purchase or refinance a manufactured home can be difficult and costly, especially compared to financing or refinancing a site-built home.

One reason for this difficulty is that, again, manufactured homes are often sold without the land on which they've been placed. Since the land isn't included, the home is considered to be "chattel," or movable personal property, for financing purposes. You’ll need to get a chattel loan rather than a traditional mortgage. Loans secured by personal property tend to have higher interest rates than loans secured by real property.

Financing a manufactured house can also be challenging because fewer lenders offer loans for manufactured homes. Those that do offer this type of loan are typically specialty lenders rather than traditional banks or big-name lenders. (There are a few exceptions, though, such as TD Bank and CMG Financial.)

Because of their affordability, loans for manufactured homes tend to be for relatively lower loan amounts. Their small size can make these loans less appealing for lenders to offer.

Despite their special risks and challenges, manufactured homes can be a smart housing choice for people who want or need a relatively affordable alternative to a rental home or site-built house. Manufactured homes can be comfortable, energy-efficient, and a good value for those who purchase them.

A manufactured house may be the perfect fit for your budget and lifestyle — or there could be a better match out there. Browse this list of housing types to find the best option for you: