Financing a manufactured home By Vikki Ramsey Conwell * Bankrate. They`re manufactured homes now and, with 19 million people living in them, they`re fast becoming the housing style of choice for people who have to achieve the American Dream on a limited budget. Today`s manufactured homes bear little resemblance to yesterday`s air-slipping tin cans on wheels. With improved quality and material, stitched together seamlessly in double-wide sections, they can be indistinguishable from site-built, conventional homes. But financing a manufactured home still can be unconventional. In financing, the key is the word "mobile. " The less mobile a manufactured home is, the better the financing deal a consumer can get. Historically, manufactured homes have been financed as personal property, resulting in personal loans that often require a 10 percent down payment, with the remainder financed over 10 to 15 years. Interest rates are higher than mortgages, resembling the rates charged on car and boat loans. However, whether the loan is called a mortgage or not, if it is used to secure your principal home, the interest paid is generally tax-deductible. Though these loans still are the most common, the changes in the industry have attracted additional lenders and types of loans. Many manufactured homes now require only 5 percent down and finance the remainder over 20 to 30 years. If the home is immobile and if the owner of the home also owns the underlying land, then the loan is likely to be viewed as a mortgage, gaining vital tax benefits. Loans for manufactured housing vary widely in their terms. If you`re buying a new home in a community, don`t feel obliged to take the financing offered by the salesperson. Who will pay for defects in manufacturing or installation. If you also own the land, make certain you can obtain the tax benefits of having the property titled as real property. Yes, it will go on the tax rolls, but the real estate taxes you pay become tax-deductible. If you must title the home as personal property, find out if your state will require you to pay annual motor vehicle fees. Study the area where the property will be located. In the past, manufactured homes were a declining asset, like cars -- they almost always lost value over time. Because the homes are better made today, the ones located in an area of appreciating property values can go up in value. "We have a variety of products and programs that vary according to down payment, the size of the home, and terms extending out to 30 years," said Leonard Zych, executive vice president of Chase Manhattan Mortgage, which has been financing manufactured homes through retailers for 25 years. Chase now offers loans directly to their consumers. When affordable housing is the goal Even Fannie Mae and Freddie Mac are players in the market, as buyers of manufactured housing unit mortgages for years and asset-backed securities on the secondary market. "Affordable housing is central to our charter and our mission, and manufactured housing is a component of affordable housing," says Fannie Mae spokesman Clyde Ensslin. The added attention from major financing players represents a big step up for an industry that people delighted in running down. Previously referred to as "box kites," "ovens" and "freezers," the manufactured housing business is in the middle of a growth spurt, blossoming into a $14 billion industry that builds nearly one in three new homes bought in the United States. In 1997, mobile homes sold for an average of $41,100. The average home had 1,420 square feet, all cooled by central air. "This market has changed dramatically over the past five, six years," says Kami Watson, spokeswoman for the Manufactured Housing Institute, a trade group based in Arlington, Va. "The old bias against manufactured housing is dying with the growth of multi-section homes," said John Diffendal, director of research at the investment firm JC Bradford & Company. "The homes have become more residential-looking and that has helped. Though financing for manufactured homes has begun to more closely resemble traditional-home financing, there are still substantial differences. The big difference for consumers is that loans for manufactured homes tend to carry a higher interest rate. Lenders demand a higher rate when a customer has fewer assets to repay a loan with, and buyers of manufactured homes tend to be on a tight budget: Lenders also have less collateral in the deal, because manufactured homes depreciate more quickly and have a shorter life span than traditional homes. Administrative fees -- loan application fees, credit report fees, document preparation costs and origination -- that are paid up front in a traditional loan are passed along to the lender in a manufactured home loan. "In the traditional world of buying a manufactured home, consumers are getting hammered on the interest rate," says N`ann Harp, president of Smart Consumer Services, a consumer education and assistance organization in Crystal City, Va. "It`s just the reality of how it is, but, in my opinion, it`s consumer abuse. As mentioned, the best rates are reserved for the buyers who most closely resemble conventional homeowners -- the buyers who own the underlying property and permanently affix the home to it. They will enjoy typical conventional mortgage rates and the accompanying interest tax deductions. They, however, represent fewer than one buyer in six. All others have to get personal property loans. For them, the interest rates, fees and down payment requirements are all over the map, depending on the lender policies, the buyer`s credit and the condition of the home. New manufactured homes tend to have a slightly lower interest rate than used ones. Although manufactured homes have to have the wheels taken off to be properly installed, many states still consider them to be at least potentially "mobile. " So buyers often have to pay annual vehicle license fees. For four out of five manufactured home buyers the journey toward financing begins with the person selling them the home. 6 percent of the loans, according to the latest survey from the Manufactured Housing Institute. About a third of all manufactured homes are located within parks, courts or subdivisions set aside just for them. Buyers in these locales usually purchase just the home, not the land. Most often, the retailers selling the homes at one of these manufactured-housing communities can point a buyer toward financing, but buyers should be able to shop for their own. While many lenders and banks provide a range of financing plans for manufactured homes, including fixed- and variable-rate loans, another hefty portion stays away from the market altogether. com spot-check of 20 large lenders, seven offered no loans for manufactured housing. Several others restricted their offerings to those home buyers who also owned the land. As more home buyers opt for manufactured homes as an entry into homeownership, the number of lenders offering financing will increase, but the industry remains very concentrated, Zych says. The two largest lenders, Green Tree Financial Servicing Corp. and Green Point Credit Corp. , control about 30 percent of the market, he says. The top 10 lenders control about 65 percent of the industry. Because of these factors, buyers of manufactured homes do not have the leverage to negotiate their financing like traditional home buyers and are at the mercy of the dealer. If you cannot get a regular mortgage on a manufactured house, the best bargaining chip is a good credit rating, Harp says. She also recommends that consumers check with their local government for incentive programs. plunk down your pre-fab home Reporter/Byline: By Donna Jean MacKinnon Toronto Star. There are bargains galore south of the border these days - just ask a pair of snowbirds from Halton Hills who bought a house for $19,000 (all figures U. ) after discovering the Florida phenomenon of manufactured homes. Their 1970s-era pre-fabricated home sits in an established gated community near Clearwater on the Gulf Coast. They have mature trees, share a kidney-shaped swimming pool, and from their back deck they can see across Tampa Bay to million-dollar homes. The set-up is similar to a condominium with a $400 monthly fee for maintenance. But according to this couple, who wish to remain anonymous, you don`t have to go to a real estate agent to buy a manufactured house. They are sold like cars because they have wheels, hidden by a "skirt" and no permanent foundation. In theory, they are mobile homes (like trailers) that can be moved to another lot. While brand new manufactured homes are priced at about $40,000, an Internet search by the couple turned up second-hand ones as low as $6,000. Once the couple paid the $815 sales tax on the house and $25 to the Department of Highways for a vehicle sticker, they were exempt from the Homesteaders` Tax. The tax, instituted in 1995, penalizes out-of-state property owners. In 1986, Torontonians Bob and Madeleine Stewart invested in their first seasonal property in Longboat Key, an island overlooking Sarasota Bay and the Gulf of Mexico. They purchased a lot with a ranch-style house and two cottages for $100,00. We stayed in one of the cottages and rented one of the other two buildings. The rentals paid almost 60 per cent of the cost of owning the property, " Bob Stewart says. Ten years later, the Stewarts invested in another house nearby. The Stewarts, now in their 50s, are freelancers in the film industry in lighting and costume design. Eventually, they plan to sell one property to finance their retirement. But now, under the Homestead Exemption Tax, they pay $9,900 in property tax for their first property, while their Floridian neighbour pays $1,500. The Stewarts are going through the same deal with their second property. This disparity in taxes resulted from the Save Our Homes legislation, passed by the State of Florida in 1992. Out of this came a tax break for permanent residents (homesteaders) of Florida. Their real estate tax is capped at 3 per cent, or the rate of inflation. Non-residents, and this applies equally to out-of-state citizens as well as foreigners, pay taxes based on annual assessed values. This measure came about during the Florida boom in the early `90s, when single-family homes increased in price by as much as 175 per cent. The legislation was designed to protect long-term Floridians from being driven out of their homes. When the Stewarts bought as foreigners, they could not get a fixed mortgage. They started out paying 7 per cent interest and at one point it rose to 50 per cent. "In early 2000, we began to re-think our position, " Stewart says. "Property taxes were gobbling up a huge amount of income. Also, real estate values were dropping. Having said all that, Stewart admits both his properties are worth more than he paid, but there is not much of a market for holiday homes due to this tax situation, hurricane fright and foreclosures resulting in bargain basement real estate. In early September, Florida held a referendum to take the school taxes out of property tax and into a state tax that doesn`t apply to non-residents, according to Stewart. This would have been a relief for snowbirds. Apparently, the language was deemed inappropriate and the Florida legislature sent the referendum back to the drawing board. It cannot be presented again until 2010. politics have further soured the Florida experience for the Stewarts. "Americans have become polarized in the past few years, " Stewart says. "Eight years ago we didn`t know anyone`s political affiliation. Now our friends are shouting at each other and socializing has become uncomfortable. Naturally, the Stewarts are disappointed after all the time they spent renovating and working on their properties with an eye to a comfortable, sunny retirement. With the benefit of hindsight, they wish they had rented. Unfortunately, the couple got caught in a classic boom-and-bust scenario. Stewart recalls three years ago being deluged with offers to re-finance. "Banks were throwing money at people (without collateral), " he says. "During the good times, the high prices were not realistic, now it`s too much the other way. Toronto resident George Paech, who recently purchased a ritzy condo near Clearwater, is also paying a premium to the taxman for his place in the sun. If he were a Floridian homesteader, the tax on his 2,200-square-foot condo would be $3,750. "My hit is $7,315, " says Paech, a retired businessman. Paech did his research before buying and he knew, as a foreigner, what he was in for. "My experience is all positive. I`ve never looked back. I play golf every day. It`s my exercise plan. Paech and his partner zeroed in on a price range. There were willing to spend up to $500,000 and they knew what they wanted: A structurally sound older community, where the wrinkles were all ironed out; no freestanding house; An international airport nearby; and an extended golf season. Paech engaged a realtor to sift through potential properties. After flying to Florida a couple of times, they settled on a residence and golf club package. Unlike the Stewarts, Paech paid cash and he was handed a deed. This avoided long-term financial hassles. Their gated community in a bird sanctuary has beach access and glorious sunsets. "It`s not really a retirement community, but the lifestyle is golf, " Paech says. Paech has his own take on the current Florida real estate market. He believes, since all the foreclosures, the banks have found themselves in the real estate business and they don`t want to be there. It has resulted in banks unloading properties at rock bottom prices. "A bank would rather there were people in the houses, so the home next door keeps its value, " he says. "Chances are the bank is holding mortgages on the other neighbourhood houses. Mortgage default and foreclosures boil down to a holiday home to fit everyone`s budget, according to Paech. Headline:Love is blind - that`s why there`s legal advice Parents who guarantee their child`s mortgage need to take heed Reporter/Byline: By Bob Aaron. Nicole and Tom are a young couple in the process of buying their first home. Because they couldn`t quite qualify for a mortgage based on their combined incomes, they needed a co-signer for the bank. Nicole`s parents live in their own mortgage-free home. Her father, Sam, has a substantial salaried income, and volunteered to co-sign the mortgage. The couple was approved for their mortgage on condition that Sam guarantee repayment should his daughter and son-in-law ever default. Although the bank did not require that Sam be registered on title as a co-owner, it did insist that he receive independent legal advice. When the three of them showed up in my office to sign the mortgage, Sam was extremely reluctant to take the mortgage papers to yet another lawyer. In his view, this was a make-work scheme by either the bank or the legal community designed to force him to pay extra legal fees unnecessarily. When he asked me why it was necessary for him to receive legal advice from a lawyer who did not represent his daughter, I told him the story of Thelma MacKay and her run-in with the Bank of Nova Scotia. MacKay was a 57-year-old separated mother of three with a monthly income of $1,200. Back in 1990, MacKay was asked by her eldest daughter Sheriann Luciano to help her get a bank loan. Luciano and her common-law spouse Michael Mankiss had unsuccessfully tried to borrow money to buy a new mobile home, so they approached her mother to take out the loan herself. The bank`s loans officer told MacKay that the loan was $45,000, and that it would be secured by a collateral mortgage on her condominium. She was not told by the bank that, in addition to buying the trailer, the money would be used to retire her daughter`s pre-existing $20,000 loan with the bank and to pay off her $10,000 credit card debt. Neither was MacKay told that her daughter and the common-law spouse had a bad credit rating. When MacKay went to the bank to sign the mortgage on her condominium, the loans officer told her to obtain independent legal advice, but she refused to do so, saying it was too expensive and that she trusted her daughter. She even signed a waiver saying she refused independent legal advice. She was never advised to take any security on the new trailer. After two years of making payments on the $45,000 loan, Sheriann and Michael filed for bankruptcy and their trustee sold the trailer. Since she was an unsecured creditor, MacKay got nothing. Lester Davies to sue the Bank of Nova Scotia claiming the mortgage was invalid, and the bank sued her to enforce the mortgage. "They say that love is blind, " the court wrote in its decision. "The plaintiff, Thelma MacKay, found this out the hard way. Fortunately for MacKay, however, the court ruled that the transaction was unconscionable and declared the mortgage invalid and of no effect at all. The court said that parents are particularly susceptible to influence in their desire to help their children, and that they should be told the ramifications of the transaction by someone. Before proceeding with the loan a bank must insist that a borrower have the opportunity of being told in clear terms that the transaction is foolhardy. In some situations, the court found, a lender must actually insist that the borrower obtain independent legal advice. Otherwise it must refuse the loan. "When all is said and done, " the judge said in the MacKay case, "there is the glaring omission in this case that no one ever said to the plaintiff (MacKay) in blunt terms that the transaction is entirely improvident and that she should not go ahead with it. No longer can a bank escape its responsibility by merely recommending independent legal advice. The court said it should have insisted on it or declined the loan. Its failure to insist on the advice created a legal presumption of undue influence on MacKay. When I told Nicole`s father Sam the story of Thelma MacKay and her daughter`s trailer, he said he now understood the reason for independent legal advice but, of course, it didn`t apply to him because he trusted his daughter and it was too expensive (sound familiar. ) and because he was a businessman who understood the ways of the world. Eventually, however, Sam obtained the advice and signed the mortgage. Courts don`t always distinguish between the sophisticated and the unsophisticated parent guaranteeing a child`s mortgage, and when it was released in 1994, the MacKay case sent a chill throughout the legal and lending communities. Now lenders routinely require independent legal advice in many parent-child loan guarantees. So the next time a parent is asked to guarantee a child`s mortgage, it may be worthwhile to remember Thelma MacKay and willingly accept the independent advice. Bob Aaron is a Toronto real estate lawyer. Send questions to Title Page, New in Homes, The Toronto Star, One Yonge St. com, or fax to (416) 364-3818. Can a mortgage be used to purchase a mobile home in canada. I have been thinking about this for a while and was hoping you might be able to shed some light on the subject.
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