The impact of not owning the land on mortgage rates
Mobile homes are popular alternatives to traditional houses because they’re cheaper and have lower upkeep costs. However, most mobile homes are not sold with the land they are situated on. Instead, they are leased from a landowner or a mobile home park, which can create issues when it comes to securing a mortgage. Since banks’ lending decisions are always based on the collateral’s value, mobile homes without land have a lower value and are considered riskier investments than traditional houses. This means that mortgage rates for mobile homes are typically higher due to the increased risk that banks take on by financing property and not the land.Mobile homes as collateral: the safety concern for banks
When people purchase traditional homes, they generally own the land on which it’s built. This ensures banks that they can use the land as collateral if the borrower defaults on their loan obligations. With mobile homes, it’s different because they can easily be moved, which makes it easier for borrowers to walk away from their financial obligations. Since mobile homes are generally considered chattel, or personal property, their financing is governed by different regulations than for traditional homes. This means that mobile homes are typically not seen as safe collateral by banks, which tends to make them appear as less secure investments.Understanding chattel loans and their effects on mobile home rates
Chattel loans are used as a substitute for traditional mortgages on manufactured homes, meaning they are often required by banks to finance mobile homes. These loans primarily finance the home and not the land it is placed on. As a result, the lender can keep the home as collateral if the borrower is unable to repay the loan. This risk means that the interest rates for this type of loan are significantly higher than for traditional mortgages. Chattel loans can have the following effects on mobile home mortgage rates:- The borrower may have less money available to spend on expenses that build property value.
- Due to the high-interest rates on chattel loans, they may require a higher monthly payment, making mobile homes less affordable to some.
- Chattel loans can have higher down payments and shorter payment terms, which can make mortgages for mobile homes more difficult to qualify for, as well as less financially attractive from a borrower’s standpoint.