Reader Question: Hello, I’m a first time homebuyer and I was hoping to get my question answered. I found a manufactured home that I love. The location is perfect and the price just reduced to $89,900. However, it is out of my price range. It has been empty and on the market for 2 years. I am approved for a FHA loan and was going to make an offer, only to discover the home was built prior to 1976. FHA will not finance it. It only qualifies for conventional financing. What are my options? – Toni P. Missouri
Monty’s Answer: Toni, there are a number of choices and decisions to make. The answer is extensive, but if the initial options prove unworkable, the new options may improve your ability to succeed in acquiring a home.
First, let us assume that this is the house, and it can be had at an affordable price. These are the options to consider:
1. Concede the FHA loan and look for conventional financing. The FHA loans are attractive because conventional lenders are making fewer low down payment loans. There are conventional programs that come close, even with the private mortgage insurance. This insurance may not be a hefty load in your price range. Some lenders today make the down payment requirements based on the local housing prices, and the housing prices in our area have not fallen off a cliff. There is an article on DearMonty.com about “Finding a home mortgage” that will provide some guidance.
2. When submitting your offer, ask the agent to include in the offer a financing provision where the seller finances the transaction. If the home is free and clear, or their mortgage does not prohibit it, asking a seller to carry a mortgage or a land contract may help both parties. From the seller’s point of view, a vacant home is cash outflow each month, and a land contract turns that drain into cash income. The seller’s circumstances may dictate whether or not this is an option for them to consider.
3. If there are no conventional lenders to make you a 90-95% loan, is there anyone to go to that can help? Sometimes we want to do things independently, even when there is someone that will help us. Many first time buyers owned a home because someone lent them a hand. Just think about it.
Another source that offers a program in rural areas to help with the down payment or guarantee the loan with a conventional lender is the United States Department of Agriculture (USDA). Check out the finance programs on their web site. The find the office serving your area to call for information is here on the web site. In largely rural areas, online lenders will sometimes offer programs not available locally, so it may pay to check them out. The USDA will lend on new and pre-owned modular homes and new manufactured homes, but not pre-owned manufactured homes.
Those are the options to try to buy this house. If none of them materialize, or you are open to other options, here are some more:
- Keep looking to find a newer home that does meet FHA standards. The current choice has restricted financing requirements that may be one of the reasons the property has not sold. That same factor may impact a sale one day when you want to sell.Also, there is a reason the FHA established the June-1976 financing limitation. Before 1976, there were many companies manufacturing mobile homes. Pre-1976 there were limited construction standards. HUD established standards at that time to improve the structural integrity of these homes. Many of those earlier manufacturers went out of business. Choosing to proceed on the current home, you may want to look past how well the owners have updated it to the soundness of the structural components. Make certain the inspector understands this is a pre-1976 manufactured home. They must be knowledgeable about seeking and identifying the potential construction and foundation deficiencies. You can find more information on the foundation guidelines here on on the web.
- The USDA has some unique rural programs. If you are handy, or can learn to be, there are “self help” loans available where you buy a home in poor condition (but structurally sound) and fix it up the way you like it.
- More housing choices open up by expanding your search area.
I hope this information is helpful, Toni. Ask me any additional questions and good luck in securing your first home.