Buying a manufactured home is a relatively inexpensive way to ender the housing market - the average sales price in 2013 was $64,000, compared to $324,500 for a single-family home, according to the Census Bureau.
But because most manufactured homes - also called mobile homes - aren't on land that's owned by the buyer, they're legally classified as personal property, like a car. To lenders that can make them a higher risk than a house, and loan rates can be double what they are on a house where the owner also owns the land it sits on.
Interest rates on mobile homes are around 8 to 9 percent, a high rate that shows part of the high risk of having a shorter economic life and depreciating quicker than site-built homes, says Greg Cook, a mortgage consultant in Temecula, Calif.
Like owning a car
Another risk is that they're mobile, Cook says. "If they wanted to, they could back it up on a flatbed or whatever and move it out of there," he says of owners.
A home on fixed land is easier to sell than a mobile home on land someone else owns, Cook says, and banks don't want the trouble of dealing with a defaulted mortgage on a mobile home. Like a car loan where the security is the car, the security on a manufactured home loan is the mobile home.
"Lenders don't want to own a trailer," he says.
And just like cars, mobile homes are tagged in most states, and they aren't taxed as real estate. Forty-nine states treat mobile homes as they do cars, giving them a Vehicle Identification Number, or VIN, says Jefferson Lilly of San Francisco, who owns five mobile home parks in Oklahoma and Kansas.
Personal property loans are called "chattel loans," and while they close quicker than mortgages, the interest rates can be so high that the Consumer Financial Protection Bureau says that about 68 percent of all manufactured-housing purchase loans are "higher-priced mortgage loans" that could be considered subprime loans.
Chattel loans typically come through companies affiliated with manufacturers and retailers of manufactured homes, which have a vested interest in steering customers to the higher cost loans, says Doug Ryan, director of affordable homeownership at the Corporation for Enterprise Development.
"It's a very non-competitive market," Ryan says.
Lower credit, lower loan amount
Along with the mobility factor, banks want to stay away from mobile home loans because the buyers tend to have low credit and the loan amounts are low and not worthwhile to a lender.
"Most of these folks will never see more than $2,000 cash in their possession in one place and one time," Lilly says.
Getting a mobile home loan at 8 to 10 percent interest is only likely in a strong economy and in locations where mobile homes sell for $100,000 or more, such as along the coast or San Jose, Calif., he says. If a borrower defaults, the bank will be responsible for paying the rent on the lot, he says.
"The irresponsibility of folks is so profound that banks aren't willing to get into a business where there's a 50 percent default rate," Lilly says.
A mobile home in the Midwest can cost as little as $5,000, which is too small of an amount for banks to want to deal with, Lilly says. For $30,000 to $35,000, a new, nicer manufactured house can be bought instead, but banks will only then offer a loan if the borrower puts the home on their own land, he says.
One owner's difficulty
Felicia Clark paid $35,000 cash three years ago for a manufactured home in Frederick, Colo. Clark now rents out the home, which she says is now worth $125,000, but she's had difficulty trying to sell it or get a loan on it herself.
"A lot of people don't want to do the loans because they're smaller amounts and twice the work," she says.
Potential buyers have been turned down by lenders because the banks wanted higher credit scores or more money down, such as 20 to 25 percent down, or the loan amount was too low, Clark says.
Another concern was that the land doesn't come with the house, she says. The land is leased, though the manufactured home is on a permanent foundation and can't be moved. It's considered a manufactured home because it wasn't built on site, but was built elsewhere.
Even with these difficulties, Clark says she's happy to have the house. She's renting it for $1,100 per month.
"It's worth it financially," she says. "It's just hard to get a loan."
Options to chattel loans
Mobile home buyers do have options. In the parks Lilly owns, the average house costs $20,000. He offers a rent-to-own option with a $2,000 down payment where renters can own the home in five years.
Another option for someone who has really good credit and the bank doesn't need security for the loan is to get a personal loan, Cook says.
Getting a home-land loan where you own the land and the manufactured home is the best option, with about 15 percent of mortgages for manufactured homes done in this way, Ryan says. Still, he says, it's common for sellers to steer buyers to chattel loans, he says. It's uncommon, he says, to get a loan on your own before buying a mobile home.
"Chattel is not going away anytime soon," Ryan says, largely because there isn't a secondary market for the loans.
Community cooperatives are another option, where mobile home park residents get together and take out a loan to buy the community and pay rent to the co-op, says Ryan, whose group works with a group called ROC USA, for resident-owned communities, to do this.
There are also programs such as the New Hampshire Community Loan Fund that help low-income buyers get into manufactured homes. More than half of the homes worth less than $150,000 in New Hampshire are manufactured homes.
The ultimate solution, Ryan says, is for states to legally change the definition of manufactured homes to real property that can be titled as such, and no longer legally classified as personal property such as a car. New Hampshire is the only state to do this with mobile homes on land not owned by the homeowner.
Having your "mobile" home legally defined as the same type of personal property as a car doesn't make much sense if you can't move it anyway.
"Theoretically, they're mobile," says Cook, the mortgage consultant. "But I don't know of anybody who has the ability to move one."