Reverse mortgage on a mobile home or manufactured home?

Can I get a reverse mortgage on a mobile home or manufactured home?

A lender that finances a reverse mortgage is counting on its ability to sell the property down the road to recoup its investment with interest.

Since the sale of the property is the most common way for a reverse mortgage to be repaid, its condition is usually more important to the lender — and the government agency backing the loan — than the condition of the borrower’s credit.

That’s why there are specific standards for a property that must be met for the homeowner to qualify for a reverse mortgage. When the bank or mortgage company goes to sell the property, they want to encounter as few obstacles as possible.

The assessment of the property’s qualifications will occur during the appraisal process. The Federal Housing Administration (FHA) has developed Minimum Property Standards (MSP) to guide appraisers through the process of determining property eligibility.

Are mobile and manufactured homes eligible?

The FHA and the U.S. Department of Housing and Urban Development (HUD) have strict guidelines on the eligibility of manufactured homes and mobile homes for reverse mortgages.

Mobile homes generally are not eligible for a reverse mortgage because, by definition, they are not affixed to a permanent site, which is a core requirement of the FHA and HUD. Also, many mobile home owners do not own the land that holds the property, but typically lease it from an association or park ownership.

The FHA defines manufactured housing as “structures that are transportable in one more more sections designed to be used as a dwelling when connected to the required utilities…”

FHA considers modular housing different than manufactured housing and appraisers can evaluate modular homes the same as stick-built properties.

Minimum requirements

To qualify for an HECM or any FHA-insured mortgage, a manufactured home must meet the following minimum requirements:

  • The floor area must be at least 400 square feet.
  • It must have been constructed on or after June 15, 1976.
  • The home was designed specifically to serve as a single family’s primary residence.
  • The home must conform with Federal Manufactured Home Construction and Safety Standards. It will have a seal bearing this designation.
  • The property and the site must exist as a single real estate entity in accordance with state law.
  • The mortgage must cover both the unit and the site.
  • The home must have been moved from the factory it was built to its current site. If it had ever been placed on a separate site, then it is ineligible for an HECM.
  • The house must have a permanent foundation built to comply with the Permanent Foundations Guide for Manufactured Housing.
  • The finished grade elevation beneath the manufactured home or, if a basement is used, the grade beneath the basement floor must be at or above the 100-year return frequency flood elevation.

Other factors to consider

Even if the property meets these standards, lenders may have additional requirements. For example, some lenders won’t consider a reverse mortgage on a manufactured home unless it were at least 800 square feet and built on or after 1990.

Also keep in mind that manufactured homes typically appraise for less than traditional homes. Since the home’s value is a key factor in determining how much a homeowner can borrow from a reverse mortgage, this could limit the amount of funds available.

For example, a 65-year-old who owes nothing on a $150,000 home will have a principal limit of about $81,000. After paying about $6,000 in closing costs, the borrower’s available reverse mortgage funds would only be $75,000.

Another issue arises when manufactured homes are built on large acreages. These types of properties are often difficult to obtain a reverse mortgage on because the value of the land is often as much, if not more so, than the value of the physical structure, a scenario that loan underwriters often balk at.

As with all properties insured by the FHA, there are other minimum property standards. Before signing off on a reverse mortgage, appraisers and underwriters will also assess the condition of the property, the presence of hazards such as pollutants, and external conditions such as noise, traffic, or odors that could affect its marketability.