Why are mortgage rates higher for mobile homes?
Q: Why are mortgage rates higher for mobile homes? I can understand that the banks’ concern is that the land is leased and they can just move the home, however, I cannot understand the depreciation, because I live in New England and the mobile homes normally appreciate. I live in a unique community in which the city has us listed as a Condo Association. I just purchased a home there because I liked the fact that you owned your own land. We pay taxes to the city, we have city services such as trash pickup, there are only 37 homes on the property and there is no expansion and yet when I went to refinance I was told it was a mobile home and had to finance at a higher rate, yet the condos I looked at I could have gotten the same rates as a home.
I don't understand this and feel rather discriminated against. Is there a law that prohibits banks from giving a manufactured home or mobile home the same rates as a home if the history in the area CLEARLY indicates the houses have made money by each sale? Thank you, very interested in your answer.
A: Many factors go into the price of a loan, and in the case of real estate, much of the value is in the land it stands on, not the dwelling upon it.
Depending upon the structure of the transaction, you loan may not be a "mortgage" at all, but something called a "chattel mortgage," which is a loan made for the purchase of movable personal property. With "real property," such as a traditional house, you hold title to it; in a chattel arrangement, the lender is the title holder until the loan is paid off.
Homes without permanent foundations ("mobile homes") are treated differently than real property; to a lender, they present different risks, and different or additional risks equal higher interest rates for any loan.
Among other factors, the ability to sell a loan to another party (also known as "liquidity") comes into play when an interest rate is developed. You mention one such risk yourself: "I live in a unique community in which the city has us listed as a Condo Association.” For loans, "unique" can equal "hard to sell or securitize," meaning the lender who makes the loan must hold it, absorbing all the risk. As a result, you get a higher interest rate.
Your city may have you listed as a Condo Association since the developer may have structured it this way to accumulate funds to pay for the maintenance of common areas and such, and to allow for city services to be performed for the community as a whole (garbage/plowing, etc).
A 25-year expert observer of the mortgage and consumer debt markets, Keith Gumbinger has been cited in thousands of articles covering a wide range of consumer finance and economic topics in outlets ranging from the Wall Street Journal to the Bottom Line newsletters. He has been a featured guest on national broadcasts for CNN, CNBC, ABC, CBS and NBC television networks and has been heard on NPR and other national and local radio programs. Keith is the primary researcher and writer for HSH.com's MarketTrends newsletter and has authored or co-authored a number of consumer guides on mortgages, home equity, refinancing and more.