Everything You Need to Know About Chattel Home LoansApril 05, 2023 by X2 Mortgage
Are you wanting to finance a mobile or manufactured home and leased land?
You might have heard that manufactured, mobile, or modular homes aren't able to be financed with a traditional mortgage. And that's true! However, if you're looking to buy a mobile or manufactured home on leased land, you may need to consider chattel loans. Chattel loans are a type of financing designed specifically for manufactured homes that are not attached to a permanent foundation.
In this article, we'll take a closer look at what chattel mortgage are and how they work, as well as some of the benefits and drawbacks of using this type of financing.
What are Chattel Loans?
Chattel loans are a type of loan used to finance personal property, such as a mobile home, manufactured home, or modular home. When it comes to manufactured homes, chattel loans are used when the home is not attached to a permanent foundation and is instead located on leased land. This is because homes that are not attached to a permanent foundation are considered personal property rather than real estate.
With a Chattel Mortgage, the borrower retains asset ownership while the lender has a lien until the loan is fully repaid. These are super popular for obtaining a loan for a home on leased land or homes that have a lot fee. Chattel mortgages can also be common in business and commercial lending, particularly for equipment, vehicles, and other movable assets (like a car or boat).
How do Chattel Mortgages Work?
Chattel home loans work similarly to other types of loans. The lender will provide you with the funds you need to purchase the manufactured home, and you'll repay the loan over time with interest. The amount you can borrow and the interest rate you'll pay will depend on a variety of factors, including your credit score, income, and the value of the home.
One important thing to note is that chattel home loans typically come with higher interest rates than traditional mortgages. This is because they are considered riskier for lenders, since the home is not attached to a permanent foundation and therefore may be more difficult to resell if you default on the home loan.
What's Required to Qualify for A Chattel Mortgage?
Due to the uniqueness of these loan products, there are some slightly different qualification metrics. While majority of the approval is based on the specific home that is being financed, there are still some general requirements and information needed by the borrower:
1. Down Payment
The minimum down payment required for a Chattel Loan is 5% of the purchase price; however, you will need a high credit score and low debt to income ratio to make this happen. Otherwise most down payment requirements for these loans would be 10% of the purchase price.
2. Max Debt-To-Income Ratio
Most traditional loan programs allow for a much higher debt to income ratio. Unfortunately on Chattel Loans, the requirement is much more strict as lot fees can change over time and the lender has to account for that added risk. Most applicants have to keep their front end debt to income ratio at 40.99% and their backend ratio at 43%.
It's also important to note that the max loan term on a Chattel Loan is 20 years which is much different compared to traditional mortgages allowing for 30-year and 40-year terms.
3. Credit Score Requirements
When it comes to credit score, there isn't a magic number on these as with any loan, the higher the score the better as it'll allow you to qualify for a lower interest rate. However, you generally want to be at a 640+ to have the best shot at being approved for your situation. Chattel Loans can technically go as low as a 550 credit score but it's much, much harder to obtain an approval at this mark.
4. Property Details
The most important part of qualifying for a Chattel Loan is the following information on the property: Make of the Home, Model of Home, Year of Home, How Much the Lot Rent Is and Purchase Price. Each of those of those have to fit a specific lender's box. For example, homes built prior to 1976 will likely not qualify unless compensating factors are present.
5. Property Valuation
Most homes secured by a Chattel Loan do not require an appraisal. While some may, the more common route of determining the value of a manufactured home on leased land is to use DataComp. DataComp provides a type of appraisal valuation that excludes the value of the land.
By speaking with a mortgage expert and having proper planning in place, most people can work to be in a position to qualify for a Chattel Mortgage.
Benefits of Using a Chattel Loan
One of the main benefits of using a chattel mortgage to finance a manufactured home on leased land is that it can be easier to qualify for than a traditional mortgage. This is because chattel loans, or manufactured home loans, are typically based on the value of the home rather than your credit score or income.
Another benefit of using a chattel loan is that it may be a good option if you plan to move the home in the future. Since the home is considered personal property, it can be easier to sell or move than a home that is attached to a permanent foundation.
While interest rates are higher on a chattel mortgage in comparison to a traditional mortgage, interest rates are far lower on a chattel loan in comparison to a personal (unsecured) loan. This makes it the most cost effective solution for financing homes in a community or park with lot fees.
Chattel Loan Drawbacks
While there are some benefits to using a chattel loan, there are also some drawbacks to consider. One of the main drawbacks is that chattel loans typically come with higher interest rates than traditional mortgages. This can make the loan more expensive in the long run, especially if you plan to keep the home for a long time.
Another drawback of using a chattel home loan is that the loan term is typically shorter than a traditional mortgage. This means that you'll have to make higher monthly payments in order to pay off the loan in a shorter amount of time. The most common term is a 20 year or a 25 year mortgage.
Obtaining a Chattel Loan Arizona
If you're looking to obtain a manufactured home loan or mobile home loan in Arizona, the process for obtaining a chattel mortgage is similar to that of other states. As mentioned, the first step is to complete an application and provide some preliminary documents to the lender.
Once you've identified the home and submitted your application and documentation, the lender will begin the qualification process. This will typically involve assessing your credit history, income, and employment status, as well as conducting an appraisal of the home to determine its value.
One potential advantage of obtaining a chattel loan for a manufactured home or mobile home in Arizona is that the process may be easier than that of a traditional mortgage. This is because less documentation is typically required, and the lender may be more willing to work with you if you have less-than-perfect credit.
However, it's important to keep in mind that chattel loans for manufactured homes or mobile homes can come with higher interest rates and shorter repayment terms than traditional mortgages. As such, it's important to carefully consider your options and shop around for the best loan terms before committing to a manufactured home loan in Arizona or any other state.
Chattel Loans Arizona
If you're considering buying a manufactured home on leased land, a modular home, or a mobile home, a chattel loan may be a good option to consider. While they do come with some drawbacks, they can also be easier to qualify for than a traditional mortgage and may be a good option if you plan to move the home in the future. As always, it's important to do your research and talk to a financing expert before making a decision.
If you want to buy a home through the use of a Chattel Loan, X2 Mortgage can help you! Based in Chandler, AZ we offer chattel loans for homes in Arizona, California, Colorado, Florida, and Texas with affordable rates and reasonable terms. Call us today at (480) 992-4200 to apply!