Owner Financing of Manufactured Homes

Many manufactured homes are sold on “soft” terms to buyers with marginal credit and incomes. The sales of new homes are typically financed by the manufacturers own (Captive) finance company. The lending standards of these finance companies are much less strict than those of conventional lenders. They are really a sales tool and losses can be written off as a marketing expense.

If the home was purchased as a land/home package with conventional, VA or FHA financing these issues don’t apply; you just have the “normal” problems of selling during a downturn.

For the others, all is well until a job change, family issue, or some other life changing event happens and the house must be sold. When the owner attempts to sell the house some ugly realities appear that probably come as a big surprise. These realities are especially ugly in a down market.

If the owner made a minimal down payment and has lived in the home for less than ten years they will probably find that:

• They still owe more than the house is worth. (This may not be the case if the house includes land which has appreciated.) The down payment problem mentioned below will still “bite” though.
• The present lender (the captive finance company) is NOT interested in financing a new buyer no matter how good their credit.
• “Normal” as in “Non Captive” lenders will want good credit scores, accurate appraisals, and 20% down payments.
• There are almost no lenders doing mobile home loans for homes on rented land, no matter how good the buyers credit. I recently had a dealer tell me he had 150 sources for financing a modular home (Manufactured home modified to be permanent) and three for a new mobile home. The rates and terms will be much less attractive and I don’t believe any of the three would finance a used home.
• When you combine a house that was purchased with 100% financing at the top end of the market and a new financing requirement for 20% cash down, the unlucky seller may find he would have to come “Out of pocket” for several thousand dollars to get the house sold.
• Closing costs and commissions usually amount to almost 10% of the sale price of a home. If the seller has less than 10% equity in the home, agents won’t accept a listing because they don’t see how they can get paid. That leads to a stressed out seller who has no idea what they are doing, trying to sell by owner. These unfortunate people look like sheep waiting for fleecing to some of the wolves out there. Actually, lambs waiting for slaughter, is probably more accurate!

I really wish I could offer helpful suggestions to those who find themselves in this unfortunate situation. There are techniques that might help, but they would require knowledge, skills, and resources which are well past what a “normal” seller can do.

So people try to find a tenant so rents will cover some or all of the payment. This sometimes works, but frequently does not. Manufactured homes are more fragile than site built houses and are especially sensitive to water damage. Tenants tend not to care about leaks and spills that are destroying the floors until major damage is done.

The best suggestion I can make is to face the ugly truths sooner rather than later and get it over with before you have used up all your money, your friends and your family. In other words, if the only way out is to file for bankruptcy do it now. Save your friends and family for help moving forward. Don’t use them up trying to keep a sinking ship afloat.