How Does the VA Look at Modular Homes

The VA will guaranty loans for mobile homes and prefabs.  Period.  However, sometimes there is a long distance between what the VA will guaranty and what the lender will loan.  It’s all about risk.  Let’s dig into some important distinctions and then consider what’s possible and what’s not.

I - Reminders

A.    The VA does not loan money on mobile homes and prefabs.  It guarantees a portion of the loans that lenders make for the purchase of homes.  That means that the VA takes the risk out of the loan by assuring that (typically) 25% of the loan will be paid off.  Truth to tell, it’s really not the VA at all but rather Ginnie Mae, the wholly owned department inside the Department of the Treasury.  Ginnie Mae stands for Government National Mortgage Association and it does its work for the VA and the FHA both.  It is truly the only government guaranty available on the market.  Fannie Mae and Freddie Mac are not government guarantees-they are Government Sponsored Enterprises (GSE’s) and there is a big difference-this becomes important for our discussion.

B.    Lenders lend the money.  These lenders are like American Bank, FSB and others who rely upon the VA Guaranty to make your loan (which is actually a guaranty by Ginnie, right?  See above.).  Lenders honor the rules of the financial markets, rules that are set by Fannie Mae and Freddie Mac.

C.    Fannie Mae and Freddie Mac are civilian, commercial enterprises that set the rules in more than 80% of all residential mortgages.  The reason is not so much their capital and their ability to buy the mortgages from the lenders but because they know the statistical probabilities of the loans being paid off connected to each little nuance of residential mortgages such as the type of property to which the money or mortgage will be tied.  These two enterprises have determined that mobile homes are extremely risky for conventional lending and that prefab homes are, under tightly controlled circumstances, not so risky.  Sometimes you might find a mobile home actually planted in cement on a property and therefore possibly qualifying for an appraisal that will satisfy the lender.  It is the appraiser who will cause the greatest trouble when you are trying to finance the purchase of a manufactured home that arrives on its own set of wheels.

D.    There is a big difference between a loan guaranty by the VA and the enthusiasm of lenders to loan for mobile homes and manufactured homes.  You may get your guaranty but you may not get the loan for the kind of house you want to buy.

II – Mobile Homes, aka Manufactured Homes

Actually, the VA does not use the term “mobile home.”  They call these homes manufactured homes.  Here is their definition:  

A manufactured home is built on a permanent frame and is made to be moved in one or more sections. It must be built to be lived in year round by a single family and there must be permanent eating, cooking, sleeping and sanitary facilities. A single-wide manufactured (mobile) home must be at least 10 feet wide, with a minimum floor area of 400 square feet; double-wide units must be at least 20 feet wide, with at least 700 square feet of floor space.

A modular home is not the same as a manufactured home for VA purposes. Although the parts or sections of a modular home are built in the factory and then moved to the building site, the home must still be put up and completed at the building site. You may, however, obtain a loan to purchase a modular home under VA’s regular home loan program.  [To read this statement which is directly from a 1993 VA Pamphlet, click here.

Loans for the purchase of manufactured homes are not easily available through usual and customary residential mortgage lending channels.  Your best bet is to go to the manufacturer of the home you are purchasing and request a list of the financing companies who will work with you and assist in your purchase.  Trust that without financing, there will be no sales.  The manufacturer will know where you will find your money for your double wide.  

III – Modular Homes

These can sometimes be called prefab homes where the pieces of the home are actually “built” in a factory.  They are then shipped to your homesite, assembled, glued and bolted together, wired, groomed with carpets and paint, equipped with sinks and furnaces, connected to utilities, inspected and handed over, all in the space of a few days.  While the closing can be tricky (it lasts several days instead of an hour), the result is a real live house with everything brand new, just like a new house for big boys and girls.  Truth to tell, this approach to new home ownership can often be the best possible bang for your buck.  And?!!!! The banks lend on them as if they were stick built houses (that means built from scratch).  Just be aware that the lender will be slightly prickly about some elements of the deal and the settlement-special underwriting guidelines will apply.  There is also the potential for confusion in the Fannie Mae Freddie Mac world about manufactured homes and modular homes.  You and your loan officer need to approach with care to make certain that everyone understands that the VA term for manufactured home is not the same as that often used in the residential mortgage world.

IV – Bottom line

Regarding prefab or modular homes, if otherwise qualified, the VA will guaranty the loan 100% and the lenders will do the deal, with some unique adjustments to the underwriting and closing.   Mobile homes/double wides and other types of homes the VA characterizes as “manufactured” are not easy candidates for residential mortgage finance even though the VA might guaranty the deal.  

Caveat:  this is an opinion of the author and not to be relied upon as a substitute for any advice offered by your lender who will be the final arbiter of everything discussed here.

Copyright 2009 © Thomas Kerns McKnight, JD, CMB

Post time: 05-20-2017