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Chattel loans: How to finance your manufactured or tiny home

Yahoo Personal Finance· Getty Images
6 min read

Whether you want to buy an RV, a tiny home on wheels that you move from one location to another, or a manufactured home that rests on leased land, you may want to consider financing your new home with a chattel mortgage.

The word “chattel” refers to personal or real property other than land or a building attached to land. Chattel loans are alternative financing options for a large purchase when a traditional mortgage may not be available — in many cases, for buying types of homes that need to be moved.

Dig deeper: Types of mortgage loans

In this article:

Traditional mortgages typically finance land and the home attached to the land. Chattel financing only helps you pay for the movable property, not the land. If you’re financing a tiny home or an RV, you may park your home on land you lease, land you own that has another house on it, land you own outright without financing, or public property. A manufactured home often sits on rented land in a manufactured housing community.

Chattel loans generally have shorter terms than a traditional mortgage, usually between a few years and 25 years, rather than a typical 15- or 30-year mortgage. Loan amounts are generally smaller than a regular mortgage, and fees may be lower because they don’t require a title search or a home appraisal. However, interest rates for a chattel loan are usually higher than traditional mortgage rates, often by several percentage points.

Read more: What is a mortgage, and how does it work?

A chattel mortgage is a type of loan used for movable property. In addition to financing modular homes, manufactured houses, and other homes not tied to land, chattel mortgages are often used for construction or farm equipment, boats, and airplanes. According to the Consumer Financial Protection Bureau, approximately 42% of loans for manufactured homes in 2021 were chattel loans.

Not all lenders offer chattel loans, so you may need to search for chattel lenders in your area. Some offer chattel loans insured by the Federal Housing Administration, U.S. Department of Veterans Affairs, or U.S. Department of Agriculture.

Qualifying for a chattel loan is similar to applying for a traditional home loan. The lender will check your credit, income, and assets to ensure you can afford the payments. You’ll also need to make a down payment. The requirements vary by lender, but most will not approve a borrower with collections or repossessions within the previous 12 to 24 months.

For example, Cascade Loans requires a credit score of 575 or higher, a down payment of 5%, and a debt-to-income ratio (DTI) — which compares your gross monthly income with the minimum payment on all recurring debt — of 50% or less. Loan terms are available for 20 to 23 years. Their minimum loan amount is $35,000, and the maximum is $275,000.

Similarly, the 21st Mortgage website states that most chattel loans require a credit score of 575. However, they offer a “no credit score” chattel mortgage option that requires a down payment of 35% in cash, a trade-in manufactured or mobile home, or land equity. Generally, the minimum chattel loan amount is $16,00, depending on where you live, according to 21st Mortgage.

Chattel loans are secured by the personal property being financed, such as the manufactured or tiny home. The property may be repossessed if the borrower gets behind on a chattel loan. Unlike traditional home loans, the borrower doesn’t hold title to the property until the loan is paid in full.

Since chattel loans are often used as business loans, they have fewer consumer protections for borrowers.

Learn more: Modular vs. manufactured home — What’s the difference?

Like other financial tools, chattel loans have advantages and disadvantages for borrowers.

Benefits of chattel financing include:

  • You are financing just the property, not the land, so loan amounts are smaller.

  • Your loan term is shorter, so you can eliminate the payment faster.

  • Loan fees are typically lower than on a traditional mortgage loan.

  • Closing is usually faster on a chattel loan.

  • Interest rates are lower than on a personal loan.

  • Interest payments on a chattel loan may be tax deductible.

Disadvantages of chattel mortgages include:

  • The lender owns your property until the loan is paid in full.

  • If you miss payments or default on the loan, the lender can take your asset.

  • Interest rates are typically higher than on a regular mortgage.

  • Shorter loan terms generate higher monthly payments than longer loan terms.

  • Chattel loans offer less consumer protection than other mortgage loan options.

Depending on whether you are financing a manufactured home, modular home, RV, or tiny home, you may be able to borrow money from other sources than a chattel loan. Some potential options include:

The Federal Housing Administration offers Title I and Title II loans for manufactured homes that may or may not include the land under the house. Both FHA loan programs have loan limits and rules about how you can use the property.

Veterans and active duty military personnel may qualify for a VA loan for a manufactured home affixed to the land underneath.

Both Fannie Mae and Freddie Mac offer conventional mortgages for some manufactured homes that meet their design standards. Borrowers must also meet multiple financial qualifications.

Personal loans typically have a higher interest rate than chattel loans, but it is worth comparing your options, particularly if you need to borrow a small amount.

If you own another property, you may be able to borrow from your equity with a home equity loan to finance a manufactured house, modular home, tiny home, or RV. Typically, you need at least 15% to 20% equity in your home and must qualify based on your credit profile, income, and assets. With a home equity loan, you’ll receive the money in one lump sum.

A HELOC is another way to use the equity you’ve built in your first home. Whereas a home equity loan gives you money in a lump sum, a HELOC acts as a line of credit so you can pull from it at any time during your draw period. You’ll only pay interest on the amount you use.

Dig deeper: Home equity line of credit (HELOC) vs. home equity loan

Qualifying for a chattel mortgage can be easier than getting approved for a regular home loan because credit score requirements can be as low as 575, and your DTI ratio can be as high as 50%. However, not all lenders offer chattel loans, so finding a lender may take extra research.

Yes. Chattel loans can be used for property not attached to land, such as a manufactured home, modular home, mobile home, RV, tiny home, airplane, boat, or business equipment.

Each lender has different requirements for a chattel loan, but many set a minimum credit score requirement of 575.

Loan terms for chattel mortgages vary from as short as five years to more than 20 years, depending on the lender.

This article was edited by Laura Grace Tarpley