Risks of Mobile Home Loans

Mobile home loans can help you purchase your mobile home similarly to how a mortgage assists people in purchasing permanent homes. Mobile home loans are generally smaller than mortgages, making them more affordable for most borrowers. It is even possible to take a mobile home loan to purchase the home and a separate loan to rent or purchase the land where a mobile home will be placed. Also similar to mortgages, mobile home loans come with a unique set of risks due to the importance of having a residency.

Minimum Credit Requirements

Getting a mobile home loan is not always easy. While many people choose to live in a mobile home as opposed to a permanent home, others will elect this option because it is less expensive. One reason to seek a less expensive residence is because of a lower income or a lower credit score. Whenever you have a low income or a low credit score, you can expect lenders to meet your application with some speculation. The lender needs to be assured you will not default on the loan, and they need to know you will make monthly payments. One way they assure against these problems is to secure the loan with the mobile home itself. This means you will be placing the home as collateral. The lender will hold on to the deed to the home until you have paid the loan in full. 

High Interest Rates 

While the loan limits are smaller on a mobile home, the financing may actually be more expensive due to the interest rates. Bad credit scores and low incomes are just a few of the factors that make a mobile home loan more expensive than other types of loans on the whole. Another factor is the difficulty most lenders have in assessing the value of a mobile home. A home may have one value while placed in a certain lot or jurisdiction and another value in a separate location.

Further, mobile homes tend to sustain more damage than permanent homes for a number of reasons. First, they are structurally unable to withstand the forces of nature as well as a permanent home.

Second, many mobile homes are not as secured against theft, break-in or other bad activities. Whenever a structure depletes in value, like a car, instead of going up in value, like a permanent home, the interest rate will tend to be higher.

Loss of Asset in Default

The biggest risk with any secured loan is the loss of the asset in case of a default. If you are placing your home down as collateral, or securing the loan, you have given the lender the ability to seize your home when you have failed to meet the terms of your contract. Many mobile home purchasers do not have sufficient savings to overcome this type of problem, which ultimately may lead to forfeiture of the asset. If this mobile home will be a residence for your family, work to assure yourself against default with an emergency fund and smart spending.

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