If We Build It, They Will Come

Manufactured Housing: An Affordable Solution for Aspiring Homebuyers

David Battany and Patrick McCarthy
A community of modern manufactured homes.
Several home builders offer off-site built homes that are indistinguishable from site-built homes.

With COVID-19 vaccinations continuing to increase, jobs are expected to come back in the industries and sectors most impacted by the pandemic. If they do, then we’re likely to see employment numbers achieve their biggest annual gains in decades, adding momentum to the growth of the U.S. economy. The national unemployment rate, which soared from 3.5% in January 2020 to more than 14% in April of last year following the pandemic lockdowns, is estimated to drop to 4.8% by the end of 2021, according to U.S. Bureau of Labor Statistics. If the Federal Reserve begins to buy fewer mortgage-backed security bonds, that could cause mortgage rates to rise. 

When rates rise, we’ll see the refinance boom of the last year transition to a purchase-focused market. The Mortgage Bankers Association (MBA) predicts 60% of all loans in 2021 will be for the purchase of new homes. People who have the option to work remotely in a post COVID-19 world may be looking to purchase new homes with space for home offices or gyms. Others, no longer required to show up to the office every day, may choose to move closer to family or friends, or relocate to states with more favorable business and individual tax benefits. In many ways, there has never been a better time to own a home.

Despite the positive outlook, our industry will continue to face challenges, particularly around a lack of new home supply and affordability as new generations step forward to become first-time homeowners. In many markets, home prices are appreciating faster than people’s incomes. Others will have challenges affording a down payment, especially if they’re still recovering from a job loss or the death of a loved one due to COVID-19. Qualifying to afford monthly payments as home prices surge and the ability to demonstrate creditworthiness are barriers for many, including in underserved communities where many people use alternative forms of credit. 

As an industry, we must do more to address the lack of supply and work to improve access to affordable housing for first-time and low- to moderate-income homebuyers. We must continue to develop creative solutions and address the lack of awareness around the availability of quality low down or low monthly payment mortgage programs. 

One option that would benefit first-time homebuyers in many markets is manufactured housing, which can play an important role in advancing the housing industry. 

The Benefits Of Manufactured Housing

Manufactured homes are one of the only sources of affordable housing that do not receive any form of government subsidy, and currently account for only about 10% of all available housing units nationwide. Despite their relatively affordable price, manufactured homes have historically played a small role when it comes to affordable housing. To increase the number of available manufactured homes and bring more off-site built inventory to the market, we need to change the current perception of this type of home. Several home builders offer off-site built homes that are indistinguishable from site-built homes. These attractive properties look like more common single-family homes, not the rectangular trailer or “mobile homes” that we’ve seen in the past. 

The new generation of manufactured homes is a breakthrough, offering comparable sizes and square footages to a site-built home. Buyers can choose from open floor plans and a wide range of designs and styles. Custom amenities include upgraded kitchens and bathrooms, high-quality flooring, energy efficient appliances, attached garages, and architectural features such as pitched roofs and porches. Buyers can select options based on their preferences and needs, adding a level of flexibility they might not have with an existing site-built home in a planned development. 

Manufactured homes are cost effective and efficient. Today’s off-site built homes are made with the same high-quality materials used in site-built construction. They are constructed in a quality-controlled, factory environment and therefore not impacted by poor weather conditions, as site-built homes often are. The use of robotics helps speed the building process without sacrificing quality. With far less time and labor required, these homes cost roughly 30-40% less to build. The waste from construction for manufactured homes can be less than half the waste of a site-built home.

What’s In A Name?

To alter the negative perceptions around manufactured housing, the industry needs to start to think and talk about these properties differently. The Manufactured Housing Institute (MHI) recently introduced a new category of manufactured homes that represents the quality and innovation that can be found in off-site built housing.

According to MHI, CrossMod™ represents the blending, or crossover, of features built on-site and the innovative, efficient modern methods used in factory home construction to create a new class of manufactured homes. In developing this concept, MHI performed market research to test potential names with more than 1,000 consumers. Initial impressions of “CrossMod” included the following: 

  • Modern and sleek
  • Combines different models/features
  • Up-to-date with many uses
  • Secure, safe
  • Innovative, smart home

MHI’s research found that while only 9% of respondents said they would consider purchasing a manufactured home, 46% said they would purchase a CrossMod™ home. Overall, consumer research and industry feedback on CrossMod homes has been very favorable, especially compared to traditional manufactured homes. 

Helping Homebuyers Get The Home They Want At An Affordable Price

To open a new segment of the market and help more people purchase homes like CrossMod™, Fannie Mae has developed specific design guidelines for MH Advantage®, a mortgage option that offers innovative and affordable financing on manufactured homes with features comparable to traditional site-built single-family homes. 

MH Advantage allows qualifying homebuyers to finance up to 97% LTV and put as little as 3% down. It includes 30-year fixed rate financing with interest rates lower than most traditional manufactured home loans. Mortgage insurance may be canceled once the customer reaches 20% equity, resulting in more savings long-term. Appraisers of MH Advantage can use site-built sales when appropriate if MH Advantage sales are not available.

With MH Advantage, homebuyers looking to customize their home can visit a manufactured home retailer and identify design elements that meet the standards of the program and suit their needs.

What Makes A Property Eligible For MH Advantage Financing?

MH Advantage is for manufactured homes built to meet standards for construction, architectural design and energy efficiency that are more consistent with site-built homes. The homes are intended to blend into existing neighborhoods. Examples of physical characteristics include:  

  • Specific architectural and aesthetic features, such as distinctive roof treatments (eaves and higher pitch roofline)
  • Lower profile foundation, garages or carports, porches and dormers
  • Use of better construction materials, such as durable siding, interior finishes, and a masonry perimeter foundation

Homes that qualify for the program are identified by an MH Advantage sticker, which is the manufacturer’s indication that the home meets the program’s requirements that can be completed in the home-building facility. Appraisers and lenders can easily verify the sticker’s presence, eliminating the need to verify the home’s specific design traits. Certain required site improvements, such as a sidewalk or driveway, must be verified through appraisal photos. Eligible homes that have already been built in a subdivision or on a lot will have the sticker, or buyers can custom order a home that meets MH Advantage requirements to qualify for program financing. 

The Wave Of The Future?

There are several home builders currently bringing CrossMod™ homes to the market that qualify for MH Advantage. Clayton, Palm Harbor Homes and Skyline Champion offer remarkably beautiful floor plans and properties (see this site for a list of all participating manufacturers). We’ve toured the home building facilities and seen this type of home firsthand and you can’t tell you’re looking at a manufactured home. 

From a lending perspective, the industry is still catching up when it comes to manufactured housing. Guild Mortgage has funded loans under the MH Advantage program, and we encourage other lenders who aren’t currently offering loans for CrossMod homes to consider adding this type of financing to their offerings. 

In recommending CrossMod housing, lenders can reach a wider segment of buyers, as the variety of features and layouts that come with MH Advantage give customers an opportunity to select the home that is right for their family. Lower construction costs often means lower down payments and lower monthly payments for the customer, and conventional financing opens doors to prospective buyers who may not think homeownership is viable. Straightforward underwriting and origination processes allow lenders to focus on building relationships with manufacturers and MH retailers in their area. 

There are many paths to homeownership for first-time buyers. It’s up to lenders to connect, develop meaningful relationships and educate consumers, appraisers, zoning officials and other stakeholders about these options. The industry is in the very early stages of bringing CrossMod homes to the marketplace and making this type of housing an attractive alternative for first-time homebuyers. The COVID-19 pandemic set us back, but now we must work to introduce more people to this option. 

With a concerted effort to change how we talk about off-site built housing and alter perceptions, we should see a steady increase in homebuyers considering CrossMod options when purchasing their next home. It can be an important step in improving the availability of more affordable housing, providing solutions to the rapid price appreciation that continues to hold the market back. 

This article was originally published in the Mortgage Banker September 2021 issue.
Mortgage Banker Magazine
David Battany and Patrick McCarthy

David Battany is executive vice president of capital markets at Guild Mortgage. Patrick McCarthy is Vice President of Affordable Lending and Housing Equity at Fannie Mae.

Published on
Sep 09, 2021
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