Some Home Loans Hard To Make
GRAND RAPIDS — Less than two of 10 manufactured homes sold in this country are financed through mortgages.
Although some lenders offer some sort of financing plan for buyers of these homes, many stay away from the market altogether.
In a survey conducted by Bankrate.com, seven of the nation’s 20 largest lenders didn’t make these types of loans while others in that sample only offered a mortgage if a buyer could jump through a few very large hoops.
So most buyers either get financing from sellers or they take out personal loans on their homes, which means they pay a higher interest rate and can’t deduct the interest payments, like buyers of site-built homes can.
According to the Manufactured Housing Institute, these borrowers are 83 percent of all manufactured homeowners.
Timothy DeWitt, executive director of the Michigan Manufactured Housing Association, told the Business Journal he hoped more lenders would become more active in the industry, which he felt was offering affordable housing and home ownership for many in the state.
DeWitt was quick to note that he didn’t expect large lenders would get on board, but he thought that middle-sized banks could do some serious business in the market and provide a useful service to residents who want to own their homes.
“It would be nice to get a big guy, but I don’t think we’re going to get him,” said DeWitt. “So if we can get two or three medium-sized lenders, it could prove to be a nice benefit for us.”
Yet, the Independent Bank Corp. — with assets of $2.99 billion and 107 offices in the state — not only offers mortgages on manufactured homes, but it has done so in the past and has seen a business opportunity surface from doing so.
“We’ve kind of made this a target of our business, to do as much manufactured home lending as we possibly can. We have experienced good performance on the loans. We have experienced the ability to do them and do them well,” said Russ Daniel, senior vice president and mortgage expert with Independent Bank of West Michigan.
The bank’s West Michigan subsidiary has 16 offices across the region with two in Grand Rapids.
The newest is the branch that recently opened in the newly renovated Steketee’s building at 86 Monroe Center.
Independent Bank makes mortgage loans on manufactured houses through one of its wholly owned subsidiaries, First Home Financial Inc.
But if applicants don’t qualify for mortgages, Independent has other programs that offer mortgage insurance and a loan. If that doesn’t work, then the lender goes to another tiered loan.
“But in all those situations, we’ve kind of evaluated what is a good business mix for us and we’ve had pretty good success in that market. So we’ve stayed in it,” said Daniel.
To get a conventional mortgage, applicants must meet what is known as a property qualification issue. Doing so makes the loan a saleable security and falls under Fannie Mae and Freddie Mac guidelines.
To meet those standards, a home must rest on a foundation, preferably over a basement.
A buyer must also own the land and qualify for mortgage insurance.
These are necessary for mortgages because lenders end up with less collateral from a manufactured house than from a site-built home. Depreciation also occurs faster in a manufactured home and its lifespan is usually shorter than a site-built house.
And, in some cases, owners of manufactured homes are on tighter budgets.
According to the state association, the average buyer of a manufactured home is 54 years old, employed fulltime and earns $28,000 annually.
In Michigan, the average price last year for a manufactured home was $55,500.
As far as interest rates go, Daniel said a mortgage on a new manufactured home will run from 7 percent to 7.5 percent, while conventional ones are closer to 6 percent. The rate is higher because manufactured homes differ and are sold in multiple categories.
Still, the interest rate on a mortgage is lower than that of a personal loan.
Daniel also said his bank will go with a 30-year term on a new home. Used ones, though, have a shorter term. Based on a used home’s value, a loan can run from 15 to 20 years. But Daniel added that roughly 75 to 80 percent of the loans Independent makes are for 30 years.
“We have made a concerted effort to try to stay as active in this market as possible,” said Daniel. “And I think we do a pretty good job with it.”