Mobile home owner financing: how the deal works, and when it fails

What is mobile home owner financing?

It is selling a mobile home and acting as the buyer’s bank. The buyer pays you a down payment (cash at the sale) and signs a promissory note for the rest: a written promise to pay you a set amount each month, with interest, until the balance is gone. You collect those payments instead of rent, and the buyer owns the home.

The version investors talk about, sometimes called a “Lonnie deal,” adds a step at the front: buy a used mobile home cheaply for cash, fix it up, then sell it on terms. Because the homes are inexpensive, the cash you tie up is small, and a down payment plus a year or so of payments can hand all of it back. (The name comes from Lonnie Scruggs; for his own account, see Taking the Mystery Out of Money.)

This page walks one hypothetical deal from purchase to the last payment, then shows what happens when the buyer stops paying, what the same note costs the buyer, and the rules that apply. All the numbers are invented for illustration and computed, not typical results.

Mobile home deal calculator

Put in what you pay, what you sell for and the note terms. The calculator shows your return, profit, cash at risk and the month you have your cash back, then two default cases side by side and the buyer’s view of the same note. Add an average prime offer rate to check the high-cost line.

The default inputs are the example below. The default cases assume $350 a month of lot rent, insurance and utilities while the home sits empty; change it to match your park.

How does a mobile home owner financing deal work, step by step?

Here is your running total, month by month, if every payment arrives:

Three numbers describe the deal: cash at risk, the most you are ever out ($2,000); profit, everything in minus everything out ($5,488); and the payback month, when your cash is back (month 10). After month 10, every payment is money you no longer have at risk.

What return does a mobile home note earn?

The return is the monthly rate at which the payments exactly repay your $2,000: the internal rate of return (IRR). It is found by trial, as a spreadsheet does.

A monthly rate can be stated two ways, and notes use the first:

• As a note rate: m × 12. This is how the 15% on the note itself is quoted (1.25% a month × 12).
• Compounded: (1 + m)¹² − 1. This is how a yearly investment return is usually stated. 1.25% a month compounded is 16.1% a year.

For comparison, $2,000 earning 10% a year for 3 years grows by about $662. 10% is close to what the S&P 500 compounded from 1928 to 2025 (about 10.0% a year, with a 11.9% simple average); individual years swung widely, and the future can be worse. The note earns more dollars on the same cash, but it asks for work, and its return depends on one buyer.

In a spreadsheet, put −2000 in B1 and 207.99 in B2:B37. =IRR(B1:B37) returns 10.07% (monthly); =IRR(B1:B37)*12 gives 120.85% as a note rate; =EFFECT(120.85%, 12) gives 216.3% compounded. =PMT(15%/12, 36, -6000) returns the 207.99 payment.

Which lever matters most?

The price you pay and how little cash you leave in the deal move the return most; the rate you charge moves it least. Here is the same deal with one thing changed at a time:

Notice that the return and the dollars disagree. A 24-month note returns more per year but earns $506 less than 36 months; a 60-month note earns $1,077 more but takes until month 15 to return your cash. A higher rate also makes the payment harder for the buyer to keep up.

What happens if the buyer stops paying?

You get the home back, if your paperwork and your state allow it, then pay to get it ready and resell it. Here is the deal with the buyer stopping after 8 payments, using the calculator’s default inputs: an $800 repossession cost (legal steps, cleanup, repairs), then $350 a month of lot rent, insurance and utilities for the repossession month and two empty months.

The spread between these cases is the real risk of the deal. A larger down payment, a buyer who can truly afford the payment, and a home in good repair narrow it more than any rate can.

What does the same note cost the buyer?

The buyer pays $207.99 a month for 36 months, $8,988 in all for the home, of which $1,488 is interest. That is the same money you collect, seen from the other side. On top of the note, the buyer pays lot rent, insurance, utilities and upkeep, which can be more than the note payment itself.

The rate matters to them. The same $6,000 at 12% would cost $1,174 in interest ($199.29 a month); at 9%, $869 ($190.80 a month). If a bank or credit union will lend on the home, the buyer should compare. And a buyer paying $7,500 for a home bought for $2,500 is paying for the repairs, the move and the financing; they should know the cash price and the total cost before signing.

The high-cost line and the average prime offer rate

A first-lien loan on a mobile home that is personal property, for less than $50,000, is a high-cost mortgage under federal rules if its APR is more than 8.5 percentage points over the average prime offer rate for a comparable transaction. (For other first-lien loans the line is 6.5 points.) High-cost loans carry extra federal rules, and making more than one in any 12 months makes you a “creditor” for the lending rules.

The average prime offer rate (APOR) is an APR built from the rates, points and other pricing that a representative sample of lenders currently offer on low-risk mortgages. The CFPB publishes it in tables updated at least weekly, and the FFIEC’s rate spread calculator carries those tables and does the comparison. You use the figure for a comparable loan: the date the rate was set, the loan’s term, and whether the rate is fixed or adjustable.

Points and fees can trigger the same status on their own: for a loan under $20,000, total points and fees over the lesser of 8% of the total loan amount or $1,000. On a note of about $6,000 that is only around $480. Both terms are defined in the rule, so have an attorney check the math.

The rest of the federal picture is the same as for any home sold on terms: a mobile home used as a residence is a “dwelling,” the seller-financer exclusions only take you out of the “loan originator” definition, and whether Truth in Lending and the ability-to-repay rule apply depends on whether you make enough loans to be a creditor.

Lot rent and park approval

Many mobile homes sit on a rented lot in a park, and the park is a third party in your deal. In general terms:

• Approval. Parks usually screen and approve new residents. A buyer the park will not accept cannot live there, so get the approval before closing.
• Lot rent. The buyer pays it to the park on top of your note. It is part of what the buyer can afford, so count it when you check their budget.
• When things go wrong. If the buyer stops paying lot rent, the park may act against the home, and you may end up paying lot rent while you sort it out, as in the default cases above. The lease and your state’s rules decide who owes what.
• Rules on resale. Some parks limit the age or condition of homes, or whether a home can be sold in place. Read the park’s rules before you buy.

Lot rent, park rules and the rights of park residents vary by park and by state. Check your state.

Titling: is a mobile home personal property or real property?

It can be either. A manufactured home may be titled as real estate or as personal property, and the CFPB notes that to be titled as real estate it generally must sit on a permanent foundation on land owned by the home’s owner. A home on a rented lot in a park is generally personal property, and loans on it are personal-property loans, also called chattel loans.

That choice changes almost everything about your deal:

• How title transfers to the buyer, and how your lien is recorded.
• What you can do if the buyer stops paying: repossession of personal property, or foreclosure on real property.
• Which high-cost line applies: 8.5 points for a personal-property home with a loan under $50,000, 6.5 points otherwise.

The CFPB has found that borrowers on chattel loans pay higher interest rates than mortgage borrowers. Titling, lien recording and repossession are state matters, and the agency that handles mobile home titles differs by state. Check your state.

Selling the note, or buying one: mobile home note investing

A note can be sold for cash. An investor who wants a 20% yield (as a note rate) would pay about $5,597 for the 36 payments of $207.99; one who wants 25% would pay about $5,231 (a $2,256 profit, cash back in month 26). Selling right after the sale, you would have $1,500 + $5,597 = $7,097 against your $3,500 cost: a $3,597 profit with nothing left at risk, instead of $5,488 over three years.

From the investor’s side, the $5,597 price is all cash at risk, the profit is $1,891 if every payment comes, and the cash is back in month 27. That is mobile home note investing: buying notes other sellers created, priced to the yield you want, with the same default risk.

What to check in your state

Every item here is set or shaped by state law. Ask a real estate attorney who knows your state before the first deal:

• Interest caps (usury limits) for a loan of this size and type.
• Licensing: whether selling or financing a number of homes needs a dealer or lender license.
• Titling: who issues mobile home titles, how a lien is recorded, and when a home counts as real property.
• Default: the notice and steps required before you take the home back.
• Parks: the rights of park residents and what a park may do when lot rent goes unpaid.
• Taxes: how the sale and the interest are taxed for you.

If you are still paying interest on a card, that is the first note to retire before writing one. The leak check shows what interest and fees cost you now.