Seller financing a mobile home park
Seller financing means the owner selling you the park takes part of the price as a loan instead of cash. It can be a second mortgage behind a bank or agency loan, or the whole loan. It works when two things are true: your first-mortgage lender allows a second lien, and the park’s income covers both payments with room to spare. Settle the first question before you negotiate the note.
A worked example
You’re buying a 40-pad park for $2,000,000. It nets $170,000 a year. All terms below are made up for the arithmetic; none is a quote.
| Source | Amount | Terms (example) | Payment per year |
|---|---|---|---|
| Bank first mortgage | $1,300,000 (65%) | 7.5%, 25-year amortization | $115,300 |
| Seller note | $500,000 (25%) | 6%, interest only, 5-year balloon | $30,000 |
| Your cash | $200,000 (10%) |
Coverage on the bank loan alone: $170,000 ÷ $115,300 = 1.47x. Coverage on both: $170,000 ÷ $145,300 = 1.17x. That’s thin. A bad winter of water-line repairs or five move-outs eats the cushion. A lender that allows a second may test coverage on the combined debt, so ask what minimum it uses before the seller’s terms are set.
Ways to make it work: a longer interest-only period on the seller note, payments that start after the first year, or a lower rate in exchange for a higher price. Each one moves money between you and the seller; none of them changes the park.
Will the first lender allow it?
That depends on the lender and the program.
- On a HUD 223(f) MHC Program loan, Mortgagee Letter 2024-11 says applications with subordinate financing “will be evaluated case-by-case.”
- Fannie Mae and Freddie Mac loan documents restrict other liens on the property; we haven’t summarized those rules here, so ask the lender before you sign a purchase contract that depends on a seller second.
- Banks and credit unions each set their own policy. Some allow a seller second with an intercreditor or standstill agreement; some don’t allow one at all.
- On a CMBS loan, the loan documents and the servicer govern any later lien.
Get the answer in writing from the lender you plan to use. A seller note that the first lender didn’t approve can put the first loan in default.
The balloon
A seller note with a short balloon comes due long before the first mortgage. Line the dates up: if the seller’s balloon hits in year 5, you need a refinance or cash then, at whatever rates and park performance look like in year 5. Run the loan sizer on your year-5 NOI to see whether a refinance would cover it.
What the seller should know
A seller note to a business buying a park is business-purpose credit, so the federal consumer-credit rules in Regulation Z don’t apply to it (12 CFR 1026.3(a)). Spreading payments out may also change how and when the seller pays tax on the gain; the installment-sale rules are in section 453 of the Internal Revenue Code, and the seller’s tax adviser should run them before the price and terms are final.
Checklist before you agree to terms
- The first lender’s written policy on a second lien.
- Combined coverage at your real NOI, not the seller’s.
- A balloon date well inside the first loan’s maturity (our rule of thumb: a year or more), with a plan to pay it.
- What happens on a late payment: the cure period, the default rate, and what the seller can do as a second lienholder.
- Whether the note can be prepaid without penalty if you refinance.
If you’d like the desk to look at the first mortgage on a deal with a seller note in it, say so in the notes on the financing form.
Sources
- HUD, Mortgagee Letter 2024-11, June 4, 2024, Section IV.E.1.
- 12 CFR 1026.3, eCFR current to October 22, 2026.