Modular Homes: What Are They & Should You Buy One?
Modular homes, also known as prefabricated homes, have come a long way in recent years. As technology continues to advance, the designs, materials, and ‘craftsmanship’ of modular homes has continued to evolve and progress. Modular homes can be a good option for someone who wants to get a brand new home, but stay on a tight budget. Modular homes are also a good option for those who need a house constructed on a piece of land as quickly as possible.
What are Modular Homes?
A modular home is also known as a prefabricated home. These homes are built indoors in a manufacturing/factory setting. The home is built with numerous pieces, and eventually transported to the final destination where a builder will assemble all of the pieces into the finished product.
Modular homes come in a wide range of floor plans. There are various upgrades/customizations a homeowner can make along the way as well. Lighting fixtures, tile, backsplashes, hardwood floors, and countertops are all examples of materials that can be customized throughout the building process.
Modular Homes vs. Manufactured and Mobile Homes
Sometimes there’s some confusion between modular homes, manufactured and mobile homes. Let’s cover all three of these in brief detail:
Modular homes are built in factories and are restricted to local state building codes. These homes are either built on a temporary or permanent chassis.
Manufactured homes are also built in a factory setting and transported to the plot of land to finish the construction process. These homes are built to meet the HUD standards (Housing and Urban Development). The factory building process removes waste, reduces the time it takes to build the home, and allows for mass production.
Mobile homes are built on a mobile chassis. These homes became obsolete in 1976 and now mobile homes are being replaced with modern manufactured homes.
Modular Home Costs
There are various costs that one needs to take into consideration when they wish to build a modular home. These costs include:
The cost of land can range quite a bit depending on the location. Be sure the land you buy can be zoned for a modular home, and figure out if electricity, sewer, and a gas line can be hooked up on the home.
Base Home Price
Once you’ve secured and purchased the land, it’s time to figure out what type of home you want. There are many blueprints available online from a variety of modular home companies. Find a blueprint that you like and purchase the home base price.
Don’t forget you’re able to expand or upgrade the base home. You can add a garage, change the kitchen cabinets and countertops, upgrade the lighting fixtures, and even choose your own appliances. If you’re on a budget be careful with the customization. They will surely add up quickly!
Site Prep & Foundation
There is no one size fits all price for the site prep and foundation. Some sites need a lot more prep work than others. For example, do any trees or boulders need to be cleared from the site? Does a french drain need to be installed? These variables can get expensive.
Once the site is prepped, it’s time to lay the foundation. Laying a foundation typically isn’t that expensive, and you can likely get a foundation laid for less than $25,000.
Taxes, Fees & Freight
Transporting the modular home to your piece of land will cost money. These are big trucks that move these homes, so you’ll also need to pay the flag cars that drive behind and in front of the vehicle transporting your home. Sales tax will need to be paid, and there may be additional fees associated with building or transporting the home.
Finishing Work & Utilities
Finishing work can be as simple as painting the inside of the home or hooking up to the city's utilities. Whatever it is, it will cost money. Some of the expenses can be figured out or estimated before the home is finished, whereas other expenses may only be present when the home is just about finished.
There will be various permits associated with the modular home. There will be various building permits, mechanical permits, pre-plan review fees and the final certificate of occupancy. Permits will be obtained at the towns building and land use department, or within city hall.
Modular Home Financing Options
One of the benefits of a modular home is the fact that financing options are available!
FHA loans are backed by the federal government. These loans are a great option for first time home buyers, folks who do not have enough cash to put a large down payment down on a home, or for people who have a lower credit score. With as little as 3.5% down, you can buy a home via a FHA mortgage. To qualify for an FHA loan on a prefabricated home, the home must be built on a permanent foundation and constructed after 1976.
VA loans are loans backed by the federal government designed specifically for our veterans. There are a lot of lenders who offer these loans to veterans with a credit score of 620+. One of the most attractive parts of a VA home is the fact that a down payment is not required. That’s right, 100% of the home's cost can be financed!
The United States Department of Agriculture offers loans that do not require a down payment. USDA loans do have some requirements a borrower must meet. Their debt to income level, location of the home, and credit score will all be considered.
A construction loan can be combined with an FHA or conventional loan. These loans are designed to finance the construction period, which can be a few months long. Once the construction is done, the loan transforms into a FHA or conventional loan.
Overcoming the Challenges of Modular Home Financing
One may be presented with a few challenges when obtaining a modular home mortgage. Modular homes are not traditional. Most banks have experience financing homes that are built on site, not transported to the site. Additionally, a modular home can be difficult to properly appraise or value.
With that said, financing is possible. As mentioned above, one may obtain a mortgage for a modular home via FHA, VA, USDA or even construction loan financing options. Working with a seasoned mortgage broker is the easiest way to ensure you do not have any hiccups in the financing process.
This page last updated: March 21, 2022
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