Mobile Home Debt Consolidation Loan

I will assume you own the mobile home and the 8.6 acres it is situated on outright, with no other mortgages or liens.

You have two challenges regarding your property. First, in general, it is more difficult to obtain a home equity loan or home equity line of credit on a mobile home than it is for a traditional home. Mobile homes tend to depreciate over time, is in contrast to other homes. Of course, since 2008, home values have decreased in many parts of the country, only recently bottoming out.

My point is that, in general, the lifetime market value of traditional homes go up while the lifetime market value of mobile homes go down. For this reason, some lenders specializing in lending to mobile home owners place cut-offs on the model years of the mobile homes they will consider for loans. If your mobile home is too old you may be out of luck, or severely limited in the lenders who will talk to you.

Your second challenge may be where you live. Given the amount of land you own, I assume you live in a rural area. Banks and credit unions are creatures of habit and like to make loans they understand. For most home loans, the land itself is a small piece of the total property’s value. In other words, lenders and appraisers look at values of comparable, nearby houses when evaluating an applicant’s collateral. That usually means stick-built, permanent homes.

If your 8.6 acres are in a rural area, and you have no permanent buildings on your land, you may have a difficult time finding a bank or credit union that will offer an equity loan on what it will consider raw land.

Good News

Before you despair, a home equity loan is possible if your mobile home is a newer model. Also, if land sales have been hot and heavy in your area recently, or your property is situated in a desirable location, then it will be easier for an appraiser to fix a value on your land. Specialty lenders focus on the mobile home market. Type home equity loan mobile home into your favorite search engine to see a list of lenders who focus on this market.

Bad News

You mentioned you are seeking a debt consolidation loan. Lenders look for four things in a perfect home equity borrower:

High Credit Score: If your FICO credit score is less than 680, then you will have a much harder time finding a loan than another person in your exact same situation who has a score greater than 680. This is not to say you should not apply for a loan if your score is less than 680, but you face more challenges if you have a sub-prime credit score.

Low Debt-to-Income Ratio: Calculate your debt-to-income (DTI) ratio by adding up all monthly debt payments. These will include mortgages or rent payments, car payments, student loan payments, and so on. Divide your total payments by your total gross monthly income. Warning bells go off in mortgage lenders minds when they see a DTI in the 40s.

Steady Income History: Lenders assume that if a person has had consistent, verifiable income in the past they will have consistent income in the future.

Equity: If you have no liens or other mortgages on your property, you have the potential to borrow up to 80% of the market value of your property. Any liens or mortgages will decrease the amount you can borrow.

No applicant is perfect, and lenders expect this. A weakness in one area may be overcome with strengths in the other three areas. If one lender turns you down, keep shopping because the next lender may have different standards for approving a loan. It pays to shop.

Alternatives to a Debt Consolidation Loan

If you cannot qualify for an equity loan, consider your three alternatives to debt consolidation:

1. Credit Counseling / Debt Management Plan

Credit counseling creates a 5-year debt management plan to repay all enrolled debts in full at interest rates that may be lower than what you may be paying now. A typical monthly payment is about 3% of enrolled debts, which may be impossible to afford if payments are already causing distress. Because of the program length and high payments, credit counseling debt management plans have a low success rate.

The chief advantage of a credit counseling debt management plan is it repays the person’s enrolled debts in full. It also has the potential to cause a lower amount of damage to a person’s score than bankruptcy or debt settlement. It does not require any borrowing, and is not dependent on a person's credit score. Almost anyone qualifies for a debt management plan.

A credit counseling debt management plan can help if debts are mostly credit cards. It cannot help with most secured debts, such as auto loans or mortgages, or with student loans.

2. Debt Settlement

Debt settlement is an aggressive strategy for resolving debt. In debt settlement, a person stops making the monthly payments on their enrolled debts. Instead, the person makes monthly deposits in a special bank account. Over time, the debt settlement company negotiates lump-sum settlements with creditors for a fraction of the balance due.

One big advantage to debt settlement is a faster time to debt freedom than credit counseling -- usually three to four years depending on the amount the person can afford to deposit each month into their special account. Another big advantage is a lower monthly cost than credit counseling. Because of these two reasons, debt settlement has a higher success rate than credit counseling. A person does not need a minimum credit score or any income history to enroll in a debt settlement plan.

One disadvantage is the harm to a person’s credit score. The amount of decrease varies by person, and is less if the person has already stopped their payments, or has been late with their payments for several months. Another disadvantage is risk of lawsuit. Some creditors take an aggressive stand against debt settlement and threaten to take people enrolled in debt settlement to court. However, the actual litigation rate is relatively low.

3. Bankruptcy

Consider bankruptcy a last resort for overwhelming debt. The federal bankruptcy code is very technical, and is practiced by lawyers who specialize in knowing its intricate rules and exceptions.

Most consumers file chapter 7 or chapter 13 bankruptcy. Chapter 7 bankruptcy cancels eligible debt completely, takes relatively little time to complete, and costs less than other options. However, a person must qualify for a chapter 7, which is not automatic for many. Student loans usually cannot be discharged in chapter 7.

Who qualifies for a chapter 7 depends on the person's amount of debt and income. If a person does not qualify for a chapter 7, he or she must seek another option or file a chapter 13 bankruptcy. Chapter 13, called wage-earner’s bankruptcy, creates a 5-year payment plan the debtor can afford and the creditors must accept. At the end of five years, remaining debt is usually canceled (except for student loans).

The big downside to either a chapter 7 or 13 is both appear on a person's credit score for 10 years.

Consult with a bankruptcy lawyer to learn your state’s list of exemptions. In Texas, for example, a homestead of 200 acres or less is exempt in a bankruptcy.

What To Do?

You asked for ideas. For a no-nonsense, no-cost, customized look at your debt consolidation options, use the Bills.com Debt Coach. This handy, online tool will ask you several questions about the type of your debts and your amounts, and give you the pros and cons of each, plus the cost estimates for each solution. Give it a try — it costs you nothing but your time.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com