Rent-to-own agreements for mobile or manufactured homes may seem like an appealing path to homeownership, but they often carry big risks and unfavorable terms.
With these deals, you rent the home for a pre-determined period while working to improve your credit and save for a down payment, after which you can purchase the property (read our complete guide to rent-to-own homes for more information on how it works.)
But rent-to-own mobile homes add to the risks of an already dangerous business model plagued by high consumer costs and low success rates. The contracts tend to be complex, frequently containing provisions that heavily favor the seller over the buyer.
Lower-cost alternatives, including traditional rentals and government assistance, may provide a clearer path to homeownership.
Key takeaways
- Both rent-to-own and mobile homes are high-risk alternatives to traditional homes.
- Mobile and manufactured homes tend to appreciate slower than traditional homes, increasing risks.
- The agreements typically only cover the home itself and not the land, leaving renters vulnerable to potential displacement if the landowner decides to sell or change terms.
- Mobile homes are often categorized as personal property, which disqualifies them from mortgage financing and makes their purchase more challenging.
- Failing to fulfill the terms of a rent-to-own agreement could result in termination fees and eviction.
Why settle for the risky proposition of rent-to-own mobile homes? Clever Real Estate can match you with experienced real estate agents who can guide you toward safer, more affordable alternatives.
What is a rent-to-own mobile home?
Rent-to-own mobile homes allow you to rent a home for a predetermined period and then purchase it at an agreed-upon price at the end of the lease.
These agreements aim to facilitate homeownership for those with poor credit (580 FICO score or lower), low income, or lack of down payment funds.
Here's how the process usually works:
- Find the right home. Prospective buyers search for a mobile home that suits their needs by contacting landlords directly or through specialized rent-to-own companies that offer mobile homes as an option.
- Sign a rent-to-own contract. After choosing a suitable property, the buyer enters into a rent-to-own agreement, outlining key terms such as the option fee (a percentage of the purchase price), monthly rent payments, and the future purchase price.
- Start the rental period. Renters move into the mobile home and pay monthly rent (usually for one to five years). Often, a portion of the rent goes toward building a down payment for the eventual purchase.
- Decide to exercise your option and purchase. When the lease ends, renters must decide whether to buy or leave the mobile home. This decision may require obtaining mortgage preapproval and completing the purchase process with help from real estate professionals.
- Exit the agreement. If renters choose not to buy the home or can't secure financing, they must vacate the property. Depending on the agreement, they may face termination fees and risk losing part of their down payment savings.
📋 Expert guidance is essential
Navigating a rent-to-own mobile home agreement requires expertise. A real estate attorney can review the contract for clarity and fairness, while a realtor can often negotiate terms like the upfront payment. They can also provide valuable insights on market trends to ensure you make a smart investment.
Pros and cons of rent-to-own mobile homes
Pros
- More flexible than buying
- Smaller upfront payment required
- Lock-in your purchase price
- Get approved with bad credit
Cons
- Low success rates
- Costlier in the long run
- Lower appreciation
- Fewer options available
- Often harder to sell
Pros
Flexible
Rent-to-own mobile homes offer flexibility by allowing you to rent before committing to purchase. You can save for the purchase while renting and walk away if you decide not to buy (though termination fees may apply). This flexibility contrasts with buying, which requires more cash upfront and immediate ownership responsibilities.
Smaller upfront cost
One of the significant benefits of rent-to-own agreements is the smaller initial payment compared to buying. Upfront payments typically range from 2-5% of the home's value, whereas buying usually requires a down payment of 5-20% to qualify for a mortgage.[1]
However, remember that the long-term costs can be higher with rent-to-own than with a traditional purchase, primarily due to high fees and the above-market rent the property owners usually charge.
Lock-in your price
Rent-to-own agreements allow you to lock in the future purchase price of the home. This can be advantageous if you secure a favorable price and expect the home's value to increase over time.
Lower credit score requirements
Eligibility for lease-to-purchase arrangements typically includes:
- Minimum income and credit score requirements.
- Maximum debt-to-income ratios.
- House price limits.
However, these requirements are generally more lenient than those for buying. Approved households often need a minimum credit score between 480 and 580.[2] This makes rent-to-own options accessible to those with lower credit scores or income.
Cons
Low success rates
Rent-to-own agreements can be costly in the long run and may not work out for everyone. As few as 50% of rent-to-own customers successfully purchase the home they had been renting.[1] This means they either can't afford to make the purchase, don't qualify due to credit score or income issues, or simply choose not to purchase the property.
The success rate gets even lower for mobile homes, which are already considered poor investments. Adding on a costly rent-to-own agreement only further reduces the returns.
Less appreciation
Mobile homes typically have one-fifth the value of a single-family home and don't appreciate as much. Their value depends more on location than the number of bedrooms or square footage.
The fees associated with rent-to-own agreements can make the total long-term cost much higher. Additionally, the land on which the home is situated tends to have higher value and steadier appreciation. Without purchasing the land, the mobile home may not rise in value enough to justify the high costs of the rent-to-own agreement.[3]
⚠️ Warning
Read up on who owns the land where you want to buy. In recent years, renting or owning mobile homes in privately owned parks has led to rising rents, hidden costs, severe restrictions on making modifications to the home, poor living conditions, and the potential for being evicted — all without due process.[4]
Fewer available options
Rent-to-own mobile homes are significantly harder to find compared to single-family rent-to-own properties and traditional rentals.
Manufactured homes comprise only 6.3% of the nation’s housing stock, while site-built single-family homes dominate at about 80%. In rural areas, manufactured housing represents around 14% of the stock.
However, according to Fannie Mae, most of these homes are owned rather than rented, with 4.8 million occupied by owner households and 1.9 million by renter households. This limited availability makes rent-to-own mobile homes a rare option in the housing market.[5]
Harder to sell
Even if you buy the property, reselling a mobile home is often more challenging than reselling a traditional home. Roughly half of all loan applications for purchasing manufactured homes are denied, compared to just a 7% rejection rate for site-built homes.[6]
Potential buyers often have difficulty getting approved for financing, so they may need to explore non-traditional, expensive financing options, complicating or stalling the home sale process.
Where to find rent-to-own mobile homes
Mobile home parks
Contact mobile home parks directly to ask if they offer rent-to-own options. Research the park's reputation and read customer reviews to ensure it's a legitimate and well-regarded place to live.
Online listings
Several websites specialize in rent-to-own properties, and popular sites like Facebook and Craigslist also have listings. However, be cautious as rent-to-own scams are prevalent. Verify the property owner's legitimacy and ensure they're not exploiting you.
Real estate agents
Your safest bet is to work with a real estate agent specializing in rentals and rent-to-own agreements. They can help you locate the best mobile home parks or listings where owners are open to rent-to-own options. Agents can also advise you on other housing options, whether renting or buying a house now.
If you're looking to buy or sell a house and weighing your options, Clever can help!
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Best alternatives
Traditional rental
Renting a mobile home while saving for a future purchase could be more cost-effective. Traditional mobile home rentals often have lower monthly payments than rent-to-own agreements and single-family rentals or apartments. For example, manufactured homes carry an average rent of $679, compared to about $1,300 for a 2-bed apartment.[7]
Government-backed programs
State and local government programs may assist low-income families in buying mobile homes. Assistance might include grants for down payments, low-interest home loans, and help with closing costs.
Check with the National Council of State Housing Agencies (NCSHA), nonprofits like NeighborWorks America, or a local HUD-approved housing counselor to find programs in your area.
Seller financing
Seller financing, or owner financing, is another alternative. Unlike rent-to-own, where you rent the property with the option to buy it later, seller financing involves purchasing the property outright from the start but paying the seller in installments instead of getting a traditional mortgage.
Seller financing can benefit those who might not qualify for conventional loans. However, it can also be complex and risky. The loan terms might not be favorable, and there's no guarantee the seller will stick to the agreement. Always seek advice from a realtor or attorney before proceeding.