If you’re a nomad at heart but want to keep a roof over your head, you’re likely in the market for a mobile home (aka a manufactured home). And the best way to finance your purchase will likely be a chattel mortgage.
Chattel mortgages are loans you get on personal property (aka chattel) that can move.
If you suspect chattel mortgages are different from conventional mortgages, you would be right. We’ve rounded up the details you’ll need to understand the loan, how it works and when to use one.
What Chattel Loans Are Used For
How Chattel Mortgages Work
At first blush, a chattel mortgage may look like any other mortgage. A chattel mortgage is a secured loan that requires underwriting. The borrower receives a lump-sum payment they repay with interest over a predetermined loan term. Pretty standard, right?
But chattel mortgages have some differences you should know about, including that the loans don’t finance the cost of land.
What’s the difference between a chattel mortgage and a traditional mortgage?
Chattel and traditional mortgages share a fundamental similarity: You can use both to finance the purchase of a home. But their similarities end there.
- Property requirements: A traditional home loan finances fixed, stationary homes. A chattel mortgage finances movable property, like manufactured homes.
- Financing land: Unlike a traditional mortgage, you can’t use a chattel mortgage to buy land. If you want to own land, you’ll need to lease or buy the land separately.
- Collateral: Traditional mortgages and chattel mortgages are secured by collateral. The collateral for a traditional mortgage is the land and the structure(s) on it. The collateral for a chattel mortgage is personal property, like a manufactured home or construction equipment.
- Repayment period: The typical repayment period for a traditional mortgage is 30 years. The repayment length for chattel mortgages is rarely ever more than 20 years.
Where To Find Chattel Mortgages
Chattel mortgages aren’t as common as traditional mortgages, but you can still find chattel mortgage lenders. Check out:
- Chattel mortgage lenders’ websites
- Online and brick-and-mortar banks
- Manufactured home dealers
Government alternatives to chattel mortgages
You’re not limited to chattel mortgages to buy manufactured, mobile, or other prefab homes. You can also look into federal programs to see what government-backed loans are available.
While the federal government backs these loans, a lender will process, approve and issue the mortgage.
- U.S. Department of Agriculture (USDA): The USDA’s Single Family Housing Guaranteed Loan Program can help you finance manufactured homes. The loan has strict eligibility requirements. The manufactured home must be brand-new, at least 400 square feet and fixed to a permanent foundation.
- Department of Veterans Affairs (VA): A VA-backed purchase loan allows qualifying service members, veterans, and surviving spouses to buy manufactured or modular homes. To qualify, the property must have at least 400 square feet of interior living space and be fixed to a permanent foundation.
- Department of Housing and Urban Development (HUD): The HUD Title 1 program allows FHA-approved lenders to offer mortgages for manufactured homes. Manufactured homes have a loan limit of $69,678 ($92,904 for a manufactured home and lot). The home must be a primary residence, and borrowers must provide proof of income and proof of funds.
Pros and Cons of Chattel Mortgages
Before taking out a chattel mortgage, consider the pros and cons.
Chattel mortgages usually have shorter terms than traditional mortgages, so you’ll pay off your loan sooner.
Chattel mortgages can finance other purchases, including heavy equipment and cars.
You can claim tax deductions on mortgage interest and property taxes.
You may qualify for a chattel mortgage even if your credit and income wouldn’t qualify you for a traditional mortgage. Chattel mortgage lenders usually require a minimum credit score of 575 (more or less). That’s considerably lower than the 620 minimum for conventional mortgages.
Chattel mortgages usually have higher interest rates than traditional mortgages. If you take out a chattel mortgage, you’ll pay an average of 1% – 2% more in interest than you’d pay with a traditional mortgage.
Lenders that offer traditional mortgages aren’t hard to come by. And there are a wide variety of options. Chattel mortgages aren’t offered by many lenders and have fewer borrowing options.
Remember, a chattel loan is a secured loan. The movable personal property you’re financing will serve as the loan’s collateral. Like a traditional loan, if you default on your chattel mortgage, your lender can repossess the property you bought with the loan.
Chattel Mortgage FAQs
How much of a down payment do you need for a chattel loan?
The minimum down payment required for a chattel loan is typically 5% of the purchase price.
What happens when you default on a chattel mortgage?
If you default on your chattel mortgage, your lender has the right to repossess the property that secured the loan.
Should I choose a chattel mortgage or a regular mortgage?
Chattel mortgages and regular mortgages each have their sets of pros and cons. Chattel mortgages are a great option if you want to buy movable property (think: mobile homes, prefab homes, etc.) and you have low or bad credit.
A traditional home loan may work better for a stationary home. Conventional mortgages usually have lower interest rates than chattel mortgages, offer a wider variety of loan types, and have longer repayment periods and higher borrowing limits. But they also have stricter property and credit requirements.
Get Moving on Your Movable Property
If you need to finance the purchase of movable property, you should look into chattel mortgages. They’re not as well known as other mortgage types and have slightly higher interest rates, but they can help you become the proud new owner of property that can move.
Consumer Financial Protection Bureau. “Manufactured Housing Loan Borrowers Face Higher Interest Rates, Risks, and Barriers to Credit, New CFPB Report Finds.” Retrieved September 2022 from https://www.consumerfinance.gov/about-us/newsroom/manufactured-housing-loan-borrowers-face-higher-interest-rates-risks-and-barriers-to-credit/
U.S. Department of Housing and Urban Development. “Manufactured Housing and Standards – Frequently Asked Questions.” Retrieved September 2022 from https://www.hud.gov/program_offices/housing/rmra/mhs/faqs
U.S. Department of Agriculture. “Manufactured Homes Single Family Housing Guaranteed Loan Program (SFHGLP).” Retrieved September 2022 from https://www.rd.usda.gov/programs-services/single-family-housing-programs/single-family-housing-guaranteed-loan-program
U.S. Department of Veterans Affairs. “Chapter 12 Minimum Property Requirements.” Retrieved September 2022 from https://www.benefits.va.gov/WARMS/docs/admin26/m26-07/Ch12_Minimum_Property_Requirement_NEW.pdf
U.S. Department of Veterans Affairs. “Chapter 7. Loans Requiring Special Underwriting, Guaranty and Other Considerations.” Retrieved September 2022 from https://www.benefits.va.gov/WARMS/docs/admin26/handbook/ChapterLendersHanbookChapter7.pdf
U.S. Department of Housing and Urban Development. “Financing Manufactured (Mobile) Homes.” Retrieved September 2022 from https://www.benefits.va.gov/WARMS/docs/admin26/handbook/ChapterLendersHanbookChapter7.pdf
Internal Revenue Service. “Publication 530 (2021), Tax Information for Homeowners.” Retrieved September 2022 from https://www.irs.gov/publications/p530
Fannie Mae. “Selling Guide.” Retrieved September 2022 from https://selling-guide.fanniemae.com/Selling-Guide/Origination-thru-Closing/Subpart-B3-Underwriting-Borrowers/Chapter-B3-5-Credit-Assessment/Section-B3-5-1-Credit-Scores/1032996841/B3-5-1-01-General-Requirements-for-Credit-Scores-08-05-2020.htm