Modular homes can offer an attractive and affordable option for potential homebuyers. With the inventory of existing homes on the market in short supply, and the cost of new home construction often prohibitive, modular construction can offer a way of getting a well-built home at an affordable price.
It's important to note that modular homes are not the same thing as manufactured homes. The latter are commonly known as mobile homes and are designed to be fitted with wheels for towing one or more sections to a home site.
Cost 10-20 percent less than conventional homes
Manufactured homes are assembled in modules to the same standards as conventional houses and are transported by truck to the building site, where the various sections are fitted together and placed on a foundation or basement. When completed, they're usually hard to distinguish from a home built by traditional construction methods.
A modular home will usually cost about 10-20 percent less than a comparable house built by conventional methods. The savings are largely due to the fact that about 90 percent of the construction is done in a controlled, factory-like environment, with the savings in labor and materials that implies. But the materials and standards are basically the same as in a conventional "stick-built" home.
Speedy construction, fewer requirements
Construction of a modular home is also about twice as fast as a stick-built home. The main steps are preparing the site, laying the foundation (or digging and constructing the basement), connecting the modules and running the utilities. Features such as cabinets, kitchen ranges and dishwashers come pre-installed and can be selected from a range of options.
As far as financing goes, there's also less red tape compared to building a home from scratch, according to Phil Georiades, chief loan steward of Federal Home Loan Centers in San Diego, Calif.
"The process is a lot quicker when compared to raw construction," he wrote in response to an email query. "If you use a government loan (FHA, VA, USDA) to construct a home from the ground up; the builder needs to be approved, the plans need to be approved, the home must be inspected (by the government designated appraiser) at different stages of the construction process."
With a modular home, the builder and plans are pre-certified, which helps simplify the process.
What are the loan options?
Financing a modular home is pretty much the same as financing a traditional home construction. You obtain a construction loan, which is usually interest-only, which makes periodic dispersals to pay the various costs as needed as the construction process goes forward. You might get one dispersal for land acquisition, another for site prep, another for purchasing and delivering the modules themselves, and yet another for assembly a utility hookup. At the end of the process, the interest-only loan is refinanced into a conventional mortgage of your choosing.
You can also get what's called a "construction-to-permanent" loan, which eliminates the need to refinance into a regular loan once construction is completed. Instead, it automatically converts the construction loan into a conventional mortgage once the final inspection is completed, so you only have to close the loan once. However, the rates and fees for this type of loan may be steeper than going the traditional construction loan/refinance to regular loan route.
A third option is to purchase the home from the general contractor who handles construction of the home itself, rather than from the manufacturer. The contractor handles the construction financing, then once the home is completed to your standards, you buy the home from the contractor. If you back out or the deal falls through for some reason, the contractor can sell it to someone else.
Finding a lender
Not all lenders are equipped to deal with loans for modular homes. You may need to find one that specializes in modular construction schedules. However, for those that are, you aren't likely to find much difference between them and the financing for traditional new home construction.
"Each lender/investor has their own guidelines in addition to the government guidelines," Georiades wrote. "Because of this, the program nuances can vary from lender to lender. However, the core guidelines are the same for each property type."
Finding a contractor
When you arrange to have a modular home built, one of the key things is finding a good contractor who is experienced in modular home construction. While modular homes are structurally similar to stick-built homes, there are certain aspects of their planning and assembly where it helps to have an experienced contractor involved.
The general contractor will oversee all aspects of the project except for manufacture and delivery of the modules. This includes site prep, obtaining permits, laying the foundation or building a basement, placing and connecting the modules, running utilities, laying the driveway and walks, and arranging the final inspection.
Many manufacturers have lists of contractors they can recommend, or you can find one on your own. It's good to get bids from at least three contractors for your project before proceeding, to make sure you're getting a fair price.
Modular home resale
When the time comes to sell some years down the road, there isn't any difference between qualifying a modular home for a mortgage compared to a traditionally built home. As long as the home passes inspection and assesses for a high enough value, the home will qualify.
The one downside in selling is that buyers may be more reluctant to purchase a modular home, even though it's built to the same standards as other homes, which may depress the price you can obtain. But since a modular home is less expensive to build in the first place, that may not be a major concern.