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Pros And Cons Of Manufactured Housing
Manufactured homes are houses that are fabricated and assembled in factories, then transported to land sites for installation.
Because of the mass production and savings on onsite construction costs, they offer an affordable alternative to home buyers on a tight budget.
They are not the same as modular or precut homes. Those are fabricated in parts, then assembled and installed onsite.
Manufactured housing are houses that ARE already assembled before transiting to the site.
Problems with manufactured homes
It’s not an easy task to obtain traditional mortgages for these types of residences.
The main reason being that they are considered high risk by traditional lenders. And rightly so.
One of the key features of a manufactured home is that it can be moved.
This is a legitimate concern because most of these types of houses sit on rented land. Add mobility into the mix, and there is the scary prospect of a homeowner moving his house on another plot of land somewhere else.
Lenders will really have their hands tied should such events occur.
Should leases for the land expire and the landowner decides not to allow the home owner to renew, there is also a prospect of the home owner cutting his losses and discard the house altogether.
Again, leaving the lender in a sticky situation.
Because of these reasons, often times, the only source of financing for manufactured homes are via high-interest unsecured loans.
Even with funding secured, home owners face a tough time accumulating equity in the house.
This means that a homeowner don’t enjoy much appreciation (if any) by being just a tenant of the land.
Furthermore, because of the types of loans that are taken up by borrowers to finance these properties, they tend to be highly leveraged. Leaving little to no equity for the owner himself.
Then there are the repair and maintenance requirements of every house.
There are typically 3 parties that make up the construction team.
Should something be damaged, identifying the culprit can cause a whole new set of problems altogether.
Saying that, there are also various advantages of manufactured housing. It’s not a booming industry for no apparent reason
Advantages of manufactured homes
As mentioned earlier, a lot of manufactured residences sit on rented land which poses a huge challenge for obtaining traditional financing.
This problem can be resolved by a homeowner by installing the house on his own land.
In certain cases, lenders could also relent if the owner has a long term lease on the land.
With the advancement of modern technology, manufactured homes are also seeing major improvements in quality and substance.
In view of the increase in demand for this market, laws have also been passed to set some standards in the building quality.
Tips in buying manufactured homes
The pitfall any home buyer or investor really need to avoid is ending up with one that turns out to be a lemon.
Avoid packaged deals
When things are packaged together, you must start thinking if the seller is trying to hide something behind the mask in the form of a package.
For example, it’s common practice retailers to move inventory with low demand together with popular products in a bundle.
If a fabricated home is packaged together with other items and there little clarity of what the buyer will be getting, the pragmatic decision is to run and never look back.
Secure a site
One of the goals that a manufactured home buyer should strive towards is in securing main stream financing.
This is because the savings on mortgage interest rates can run up to 3% or even more.
That is a lot of interest charges to pay for when we calculate it over the long term.
And in order to qualify for traditional financing, one need to have his own land or at least secure a long term lease on it.
And if you are going after a conforming mortgage, make sure to check with Freddie Mac on their requirements to be assured of your eligibility.
One headache that you surely do not want is to accept a loan thinking that it meets the eligibility criteria and finding out later that it does not.
This can be especially critical if you are leasing instead of buying the land.
Otherwise, you might have to end up with unsecured loans.
In this case, I personally would not buy.
As mentioned earlier, one of the big issues with these types of homes is regarding who is responsible for what.
To alleviate this problem, make sure that each party is held responsible for their part of the job.
The easiest way is to hire the same manufacturer for the transport and installation services. This way, whatever damage that occurs, there is only one party that can possibly be responsible.
This also means that it’s not a good move to hire different service providers to do different phases of the job.
Even if you decide to do so, finding and hiring a qualified installer can present a huge challenge by itself.
Dealers will try to squeeze out as much revenue as possible from each customer.
So it shouldn’t surprise you to find that they offer to finance the property as well.
They might even throw in discounts if you engage them to finance the deal.
However, if you can qualify for mainstream financing from traditional lender, it is usually cheaper by going that route.
Should you buy a manufactured home?
I can see why manufactured homes can be an attractive proposition for many people.
They are improving in quality and workmanship constantly. And they can be very affordable compared to typical real estate.
But the main issue is always with financing.
If you have your own plot of land, or able to buy one specifically for the house, I’d say why not.
But if traditional lenders are refusing to finance the house, surely they have good reason to do that.
In that case, waiting until you find that suitable plot of land will be worth it.