Home prices keep going up and finding an affordable home can be tough. Fortunately, prefab options called modular homes may be the solution. Modular homes come in two main varieties: Off frame modulars and on frame modulars. Over the last few years, there has been some back and forth with lending guidelines regarding on frame modular homes. Recently, more options have come available for modular home buyers or homeowners. So, let’s review ways to finance modular homes through VA, FHA, USDA, and conventional loans. Often low to no down payment is needed for modular homes too!
On Frame Modular Definition
As mentioned, modular homes are prefabricated products and they are primarily built in a climate controlled manufacturing facility. But, a common confusion is the difference between on on frame vs off frame modular homes. Looking at the inside, outside, and the roof, you can’t tell the difference. Even both can be one or two story homes. Many times they offer unfinished or finished second stories too. But, here are some of the most common differences between an on frame modular and off frame modular.
Off Frame Modular Specifications
- Has no steel frame underneath
- Has 2″ x 10″ floor joists, sometimes they can be as small as 2″ x 8″
- Floor joists are 16″ centers
- May appraise higher
On Frame Modular Specifications
- Has a steel frame underneath
- Has 2″ x 6″ or 2″ x 8″ floor joists
- Floor joists are up to 24″ centers
- May appraise a little lower than off frame
How Do I Know it is a Modular Home?
It is so common for modular or manufactured homes to be listed online through MLS as manufactured/modular home. The problem is these are two different types of homes and are treated differently when it comes to loan programs, appraisals, and usually interest rates. So, how do you tell the difference between a modular home and a manufactured home? The biggest thing is modular homes have a “modular home seal”. Typically, the modular home seal is located in a kitchen cabinet, electrical panel box, or sometimes another area. Conversely, manufactured homes have HUD data plates located on the outside of the home.
What if neither is found? Especially with manufactured homes that have been re-sided with new vinyl, the plates are covered up. If neither a modular home seal or HUD data plate are found, there will have to be research done to figure what you have.
Fannie Mae – On Frame Modular Guidelines
This has been one of those back and forth guidelines. Years ago, all modular homes were treated the same as a stick built home. Otherwise known as a site built home. Then, things got a little strict and conventional loans treated on frame modulars like a doublewide. This meant that the appraisal must include manufactured home comparables rather than stick built home sales. Obviously, the values were not as high and guidelines are a little more strict on manufactured homes.
Now, Fannie Mae conventional loans allow on frame homes to be treated as stick built homes. Thus, conventional financing is available up to 97%. Plus, there is not a requirement for appraisers to compare to doublewides anymore. Although, some lenders may still have this requirement.
Fannie Mae Modular Home Appraisal Requirements
In regards to appraising all modular homes, Fannie Mae states “The process of selecting comparable sales for factory-built housing is generally the same as that for selecting comparable sales for site-built housing.”. Furthermore, “When the subject property is modular, prefabricated, panelized, or sectional housing, it is not required that one or more of the comparable sales be the same type of factory-built housing, although using comparable sales of similar types of homes generally enhances the reliability of the appraiser’s opinion of value. Fannie Mae requires the appraiser to include in the appraisal report the most appropriate comparable sales data to support his or her opinion of value for the subject property.”. Source: Fannie Mae B4-1.4-02
USDA Loans – On Frame Modular Home
USDA is still a little different. No problem with an off frame modular on USDA guaranteed loans. But when it comes to on frame modulars, USDA treats it like a manufactured home. Therefore, previously occupied on frame homes are not allowed when using USDA financing.
FHA Loans – On Frame Modular Homes
Like Fannie Mae loans, FHA treat modular homes the same. Therefore, full financing and the same rates are used as a stick built home. That means buying an on frame or off frame modular home could be as low as 3.5% down payment ($100 down if a HUD owned REO property!). Refinancing treats it just the same.
VA Loans – On Frame Modular Home
Current military, Veterans, and qualified surviving spouses have quite a tool for building, buying, or refinancing a home. Luckily, these same benefits apply to both types of modular homes. Like FHA and Fannie Mae loans, VA allows modular homes to be compared with stick built homes or to other modular closed sales on an appraisal. The result is up to 100% financing on a purchase or building of a modular home. Refinancing a modular home allows for cash out up to 90% of the appraised value or a streamline refinance does not require an appraisal.