Homeownership could cost you under $100,000 if you consider a manufactured home

A used mobile home can cost less than a new SUV, making them a perfect first step for many homebuyers.

Now called manufactured houses, they've become a best-bet for a growing number of prospective buyers struggling with record home prices and rising rents. And now the Federal government wants to make it even easier to own one.

Last month, the Federal Housing Administration (FHA) upped the loan limit to $105,532 for a "single-section" home and $193,719 for a "multi-section" home. If you finance the home and the lot it sits on together, the the new loan limit is $148,909 for a single-wide home and $237,096 for a double-wide.

"The higher loan limits better reflect the significant cost increases of new construction for all housing types," said Mark Brunner, president of the Manufactured and Modular Home Association of Minnesota (MMHAM). "The change should help in expanding the pool of potential buyers of new manufactured homes."

Brunner said factory built homes are now Minnesota's largest source of non-subsidized attainable housing, accounting for nearly 15% of all new single-family homes sold.

Of all the factory built options, those once known as mobile homes are now among the most affordable because unlike a traditional site-built house — which includes the structure and the land it's on — many manufactured homes are often sold without a place to put them, putting them in same category as cars and boats. That's also what makes them more affordable than a site-built home.

Here's what you need to know if you're looking into making a mobile home your abode.

Prices vary

Today, there's an abundance of factory built housing options, ranging from manufactured houses that arrive on a trailer ready to occupy to modular houses delivered in sections and assembled on site. Delivery and assembly methods, as well as local and national building codes, are what set all of them apart.

Like all other kinds of housing, manufactured house prices vary dramatically. And because many don't sell on listing sites with real estate agents, sales stats are elusive. However, late last year, LendingTree analyzed national data from the Department of Housing and Urban Development (HUD) and the U.S. Census Bureau, that showed the average manufactured home cost $127,300 (not including the land) compared with $430,808 for a site-built, single-family home. The average single-wide cost $86,100 while a multi-section cost $158,633.

That analysis also showed that from 2017-22, the average price of a new mobile home increased 77.1%, far faster than a new single-family home, which increased 46.7%. In both cases, those gains didn't include the value of the land. Larger, more expensive floor plans and higher construction costs could be part of what's driving those increases.

"More people are considering mobile and manufactured homes because they're able to get a home loan easier than before," said Carrie Gibbs, broker at Century 21 Moline Realty in Cambridge. "People who thought they'd rent for the rest of their lives are now able to own a home."

Gibbs said manufactured homes are an increasingly popular option, especially for first-timers or empty-nesters who can't afford a traditional home.

She said as construction costs have risen, these homes have become a more feasible option for people who can't afford to build a home and want to live on rural acreage. For example, a three-bedroom, two-bathroom manufactured house on three acres near Mora recently listed for $185,900.

"You can't buy a site-built house for that," she said.

Allotting for lot rent

In Minnesota, there are nearly 1,000 privately owned and licensed manufactured home communities that provide land-lease home sites. About 10 or so of these are small and cooperatively owned, Brunner said, but national investors own a growing number of them.

If you're buying a home in one of these communities, you'll pay a monthly fee based on the location and what the owner includes. Lot rents typically include water and garbage hauling. Some also include snow removal, yard maintenance and access to a variety of amenities. Generally, lot rents are a few hundred dollars a month, and the closer you are to the central cities where land prices are higher, the higher the rent.

At Urban Grove, which is only about 10 minutes from downtown Minneapolis, the monthly fee is $910 for a new double-wide with nearly 1,500 square feet that's listed for $179,000.

Here's the catch: Most parks require residents to pass a credit and criminal background check, so even if you can afford to buy the home, you might not be eligible to purchase one. Because demand for owner-occupied homes is so strong, a growing number of parks no longer allow rentals.

Financing options

Modular homes built to state building codes and attached to a home site are considered "real property" and thus taxed accordingly; they are still eligible for a conventional mortgage. Usually, they're attached to a permanent foundation and they often have basements.

Manufactured homes, also built to federal building codes, qualify for a conventional mortgage when sited as real property or attached to land the homeowner outright owns rather than leases. Brunner said roughly 80% of all new manufactured homes sold in Minnesota are sited as real property. The balance are in "land-lease" communities and classified as personal property.

The MMHAM said about 85% of all new manufactured homes sold in Minnesota are attached to "real property" and financed with a traditional or conventional Fannie/Freddie-backed mortgage. The remainder are sited on leased land, limiting financing options.

The upside to placing a mobile home or prefab house on land you own is you can avoid the monthly lot rent, but there are several economic considerations that can increase the cost by tens of thousands of dollars: You'll need access to water, sewer and electricity, and you'll have to be sure local zoning rules permit such a structure. Many subdivisions, especially those in the metro, also have designs and covenants that prevent you from placing a manufactured home on a site. That's less likely to happen in rural areas, but those places also are more likely to require you to install your own well water and septic tank.

Because some manufactured homes have the potential to depreciate like a car or boat, lenders consider them a more risky investment than a site-built home, which means you might pay a higher mortgage rate for a shorter term.

Chuck McQuillan has been in the manufactured housing finance business for more than 40 years. He's worked for all the big lenders but is now running his own business, Berins Enterprises in Spring Lake Park. He said while it can be challenging to obtain a loan, it's far from impossible: Most mobile home buyers end up financing their purchases.

He said while many lenders in this sector have come and gone, but "those in the biz today are long-term players." The big three nationals, he said, are Credit Human Federal Credit Union, Triad Financial Services and 21st Mortgage Corporation, which Clayton Homes — a manufactured home company Warren Buffet owns — operates. McQuillan cautioned that not every national lender is licensed to do business in every state.

The hunt for homes

Because many manufactured homes aren't considered real property, shopping for one can be an unreal experience that requires perseverance and determination. Only a fraction are on the Multiple Listing Service (MLS), and there's no one-stop shop for such listings.

Sellers can list their homes on a variety of sites, including mhvillage.com, Facebook Marketplace and craigslist.org. In high-demand areas, houses sell quickly and by word of mouth. And in some cases, sellers simply post a for-sale sign in their window.

Tricia Anderson, a sales agent with Century 21 Moline Realty in Cambridge who has listed and sold many factory built homes, recommends talking with as many park managers and residents as possible.

Century 21′s website enables buyers to search specifically for mobile/manufactured home listings, and the Cambridge office carries special errors and omissions insurance that enables them to handle such transactions.

In Cambridge, she said, Pine Village is an especially coveted community among such buyers. It's a rare age-restricted community that's an appealing option for snowbirds who want an inexpensive living option in Minnesota. But it also draws buyers who once owned a farm or rural property but have since retired and now want more maintenance-free living. The firm recently listed, and found a buyer, for a two-bedroom, one-bath home listed for $39,900.

"There are beautiful parks all over Minnesota that are hidden gems," Anderson said. "You need to visit and talk to homeowners and park managers and really do your research."