Mobile Home Loans

In considering the purchase of a mobile home, a potential buyer has some options as to the components of his loan. The first option is to put at least 20% down, making the remaining principal smaller. The second option to put less than 20% down, making the amount financed larger. This is called a low down payment mortgage and it has several negative ramifications. When the amount financed is greater than 80% of the sale price, the mortgage company requires that the buyer take out private mortgage insurance (PMI) and fold that into the mortgage payment. This additional amount protects the mortgage company from a loss if you are unable to make the monthly payments.

A resulting negative is that the PMI makes it more difficult to meet the monthly burden. The effect is magnified because the principal and interest are both larger and the added PMI increases the amount even more. If you find that you can’t meet the monthly payment, the mortgage company will put the home in foreclosure.

At some point in the history of the loan, your outstanding balance will drop to 80% of the sale price, at which point you no longer have to pay the PMI. This concept frequently gets forgotten and the buyer continues to pay unnecessary payments. It is a very simple matter to call the mortgage company and ask that the PMI be dropped. The PMI is only for the benefit of the mortgage company and does you no good after a certain point is reached.

For some people, the low down payment method may be the only way they would be able to purchase their own mobile home. One caution here is needed -buyers should choose this option only if they are able to afford the larger payment amount which includes the PMI. It can be very tempting to go for the option of a low down payment but you will pay for it in additional fees (PMI) and in more total interest.