If you are debating whether or not to purchase a traditional single-family home or a modular home, you should carefully weigh the pros and cons before deciding. Here is everything you need to know about buying a modular home.
A modular home is a home that is built in a factory and then delivered to the desired location. Unlike a single-family home, which is constructed entirely onsite, the bulk of the construction of a modular home is completed in a remote location. Then the pieces (or modules) are shipped to the desired property to be fully assembled.
The main benefit of a modular home is the cost savings. Building the structure in a factory rather than on the actual property makes the process more efficient and cost-effective, decreasing the total price. They are also quite durable if built well, and the prefabrication process allows for more quality control than traditional construction.
It’s often much more challenging to obtain financing for a modular home because the resale value is tough to predict. Even though they may be built to perfection, most homeowners prefer traditional construction, making modular homes difficult to sell. Plus, there are additional costs that you must factor in, such as the cost of the raw land, laying the foundation, installing plumbing and electoral work, and transporting the home. So, without proper financing, you may have to pay all these costs out of pocket.
The exact cost to build a modular home varies depending on the builder and the property’s design. But it typically costs anywhere from $100-$200 per square foot, plus the cost of the land and additional fees. So, the cost to build an 1800-square-foot model home is anywhere from $180,000 to $360,000.
One of the biggest obstacles when purchasing a modular home is obtaining financing. It can be challenging for lenders to get an accurate appraisal of the home’s value until its built. But the owner typically can’t construct the property without a loan. This makes financing modular homes with a traditional mortgage difficult. Luckily there are options available if you are considering a purchase. Let's take a look at the most common options for financing a modular home.
1. Conventional Construction Loan
The most common method for financing the purchase of a modular home is through a construction loan. A conventional construction loan is specifically designed to fund a construction project provided by a traditional lender like a bank. Construction loans can apply to the development of a modular home to finance all aspects of construction, including the purchase of the land, the foundation, electrical work, and anything else. Then, once the home is built and appraised, this loan can be converted into an end loan or a mortgage.
2. USDA Loan
Another option for financing a modular home is a USDA loan. They offer construction loans with as little as 0% down. But you must be a first-time homebuyer and purchase the home through an approved dealer-contractor.
3. VA Loan
If you are a veteran, you could also get a loan through the VA. They also offer loans for modular homes with as little as 0% down. If you purchase a pre-existing modular home, you can get a regular mortgage insured by the VA. But, if you plan on building it from scratch, you will need to get a traditional construction loan first, then refinance into a permanent VA mortgage.
4. FHA Loan
FHA loans are another option. Getting an FHA loan will be similar to getting a conventional construction loan; however, they also offer lower down payment options. But the FHA also has specific requirements for your financial credentials and the total construction costs.
5. Pay Cash
The final option is to pay cash. While this may not be feasible for everyone, if you have a decent amount of savings or you sell your existing home, you could use the money to build a modular home. Although it’s a big undertaking, it would be less expensive than building a custom single-family home.
1. Obtain Financing and Set Your Budget
The first step is to decide how to finance the project. If you are paying cash, then you can skip this step, but if you are financing your modular home, you will need to seek preapproval first. Once you’re preapproved for a loan, you can decide on a budget and start the process.
2. Find a Lot For Your Modular Home
Next, you’ll have to decide where the property will be located. Depending on where you live, your options may be somewhat limited, and you’ll have to either look for vacant lots or look in undeveloped areas and have any trees and foliage removed. Unless you’re willing to pay for the demolition of an existing home in a neighborhood you like.
3. Search for Homes and Select a Floorplan
Once you’ve found a suitable plot of land, you can start designing the home. Most modular home builders offer a selection of set floorplans that you can choose from with the option to customize certain features. But with the right budget, you may be able to find an engineer who will help you design your dream home from scratch.
4. Start the Building
Once you’ve made your selection, it’s time to begin the building process. It typically takes a few months for the home to be constructed. While this is happening, you can start to clear the lot, lay the septic system, and begin building the foundation. When the home is complete, it will be assembled and laid on top of the foundation. Then, you can finish any additional construction-related tasks like installing the plumbing and electrical system.
Once the construction phase is completed, all left to do is move in. Before moving in, you should make sure to conduct an inspection and do a final walkthrough to ensure that everything was constructed properly. But once you’re sure it’s safe, you can finally move into your new modular home.