Why Conventional Construction Loans Are Easier For Manufactured Homes

Jed Lowman

I was talking with my customer’s builder last week, and he said, “Conventional construction loans are a lot easier for me than FHA construction loans, and it looks like they’re less expensive for the customer.” I thought about it, and realized he was right. 

I’ve been originating construction-to-permanent loans (CTP) for over ten years and started with FHA loan products when it was the gold standard of new construction financing options. Today, it’s more apparent that conventional, new construction loans combined with MH AdvantageTM-eligible manufactured homes, will be the new standard as more home buyers seek to title their new modern manufactured homes as real property, like site-built construction.

For those unfamiliar with MH Advantage, it’s a loan product available through Fannie Mae-approved lenders that provide manufactured home buyers with site-built like conventional 30-year fixed rate low-interest financing. The manufactured home must include certain features and qualities that are the same or better than what you find in site-built homes.

The builder and I were collaborating on our customer’s dream home and we were looking at funding the loan within a week. We were both amazed at how smoothly the conventional CTP financing had been going. Here’s what I think makes using MH Advantage and conventional CTP financing a better solution than FHA’s CTP version for anyone interested in building a new home using today’s manufactured housing.  

Conventional CTP financing allows borrowers to make interest-only payments every 30 days during the term of construction 

FHA CTP financing requires that construction interest be included in the customer’s acquisition costs – This pre-calculated construction interest could be as much as 5% of the total purchase price, so it can be a lot of negative equity to make up on an appraisal.

There are less requirements/conditions for conventional financing vs. FHA financing

The biggest complaint from builders about FHA financing is the amount of paperwork required, so anything that can make the process easier for the builder and the customer is an automatic win.

MH Advantage-eligible homes can be appraised using similar site-built comparable sales. 

This allows for greater valuation than an FHA appraisal which limits all comparable sales to other manufactured homes. In reality, if you look at the requirements for an MH Advantage-eligible home (garage, porches, higher roof pitches) they compare favorably to new and existing site-built homes more than older manufactured homes built in a different era.

Here’s an example of an actual project I’ve been working on with a builder: the builder’s home and improvement price totaled $260,000; the lender’s construction administration fee was $5,500, and we had another $7,000 for all closing costs and prepaids. The total acquisition cost for the transaction was $272,500.  For this deal to work, we needed a minimum appraised value of $286,900 to meet our maximum 95% LTV for a Conventional loan.

If this same project was structured as an FHA CTP loan, the builder’s costs, closing costs and prepaids, and construction administration fee would remain the same.  Because it’s FHA the customer’s construction interest must be included in the loan amount in addition to another $15,000 for construction interest, for a total acquisition cost of $287,500. The project must now appraise for $298,000 to meet our maximum LTV of 96.5% for an FHA loan.

Ultimately, our project’s appraised value came at $290,000, so our customer was able to utilize conventional CTP financing combined with an MH Advantage-eligible home, but if this were an FHA CTP transaction, we would need to start looking at other less desirable options.

Now don’t get me wrong I think that FHA, VA, and to a lesser degree, USDA will always have a place in CTP lending. However, I believe for today’s modern manufactured housing to truly grow in scale that can help solve the housing gap that challenges our nation, it will be through conventional CTP financing using MH Advantage-eligible homes.

For more information about MH Advantage-eligible homes, check out https://www.manufacturedhomes.com/mh-advantage 


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