A manufactured home can be classified in two ways. On one hand, homeowners can apply for a standard home loan when buying a manufactured property just as they would when buying a traditional-build home. This would classify the home as real estate property. On the other hand, the manufactured homeowner can also apply for a chattel loan, claiming the home as personal property.
A chattel loan, also known as a personal property loan, is a loan arrangement in which an item of movable personal property acts as security for a loan. The movable property, or chattel, guarantees the loan while the lender holds an interest in it. Of course, this differs from a conventional mortgage in the sense that the loan is secured by a lien on stationary property.
A chattel loan is one of the most common ways to finance manufactured homes that sit on land-leased properties. Because the homeowners in this case don’t own the land they lease, they can’t use a traditional mortgage. Therefore, the chattel loan gives them an alternate option.
Chattel loans are also very common for homeowners who already own the land they plan to put their new home on. Manufactured home owners who are upgrading to a newer or bigger home, as well as those who are downsizing, will most often purchase their home with a chattel loan.
The terms “personal property security,” “lien on personal property,” or even “movable hypothec” are also synonyms for a chattel mortgage used in different jurisdictions around the world.
Understanding Chattel Loans
Manufactured homes, vehicles, airplanes, boats, and even heavy-duty farm equipment are all assets that are often financed using chattel mortgages.
In a chattel mortgage, the lender (such as the bank) holds a lien against the manufactured home that is used as collateral. The lien protects the lender’s interest in the property by providing security in the case that the borrower (homeowner or investor) fails to fulfill contract provisions.
Just like a mortgage on a site-built home, ownership of the chattel conditionally transfers to the lender until the loan has been satisfied, but this should not deter the homeowner. The borrower (AKA the homeowner or investor) resumes full control and ownership of the chattel once repayment of the loan is complete.
Benefits of Chattel Mortgages
A chattel mortgage boasts a number of benefits, including:
The interest charged on the loan is tax deductible, with some limitations
Monthly mortgage payments can be structured similar to that of traditional mortgage
Chattel mortgages are secured loans
Interest rates are generally lower compared to interest rates associated with unsecured loans
As previously mentioned, a traditional mortgage can’t be used to finance manufactured homes situated on leased land because the land doesn’t belong to the owner of the manufactured property. Instead, in these cases, the manufactured home is considered “personal movable property,” and can be the subject of a chattel mortgage, serving as security for the loan. The financing arrangement remains valid even if the manufactured home is moved and fixed to a different location.
Various lenders also offer chattel loans for manufactured homes insured by the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA) and the Rural Housing Services (RHS) under the U.S. Department of Agriculture.
Interest rates for manufactured homes vary from low FHA insured mortgage rates to higher rates based on the age and size of the home, the amount of the loan, the amount of the down payment, the term of the loan, the site location, and the borrower’s credit.
The interest rate might be higher on a chattel home loan than a conventional mortgage because it is a personal property loan, however, loan payments for chattel loans are often less than a mortgage for a site-built home loan or than renting a comparable apartment.
Is a Chattel Loan Right for You?
If you lease the land your manufactured home sits on, or already own the land you plan to put your manufactured home on, a chattel loan might be in your best interest. To read more on the laws and regulations surrounding manufactured homes and their associated mortgages, read up on them on the Alabama Manufactured Housing Association’s website.