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Modular homes: What they are and how to finance them

Yahoo Personal Finance· Getty Images
Updated 5 min read

Historically, owning a home represents a life milestone, and it can be a great way to build wealth over time — but buying a house is much pricer than even five years ago. Still, many Americans would like to own a home.

Many types of homes offer more affordability than the traditional detached, single-family home, though. Creative options such as buying a factory-built modular home make buying a house more financially feasible so that you can become a homeowner sooner.

Dig deeper: 12 popular types of houses

In this article:

What is a modular home?

How much does it cost to build a modular home?

How to finance a modular home

Sustainability features

Pros and cons

Modular homes vs. manufactured homes vs. mobile homes

FAQs

Modular homes are houses with parts (called modules) built in a factory and then assembled on a foundation. Sections are built before arrival at your land plot. Before the home arrives, you’ll need a piece of property and a foundation to assemble the pieces. Although home building in the factory could take six months to a year, installing housing on the foundation usually only takes a few days.

Site-built homes also have a foundation but are built brick-by-brick or wood-plank-by-wood-plank on the site. Thus, each home requires its own construction crew. The price savings for the cheaper construction costs of building the house in a factory, including the price of land, is about 80%.

When it comes to building versus buying a house, there are home construction costs you need to know about. Modular homes may require more money up-front than other types of new construction homes.

You must put down a 10% to 20% deposit with modular home builders, called a curbside payment or pre-curbside payment, before construction begins. You’ll also have to choose any upgrades you want at the beginning of the process before you can schedule a home appraisal. The estimates from your builder at the beginning need to include all costs minus your property costs. You should also consider land costs and foundation. Shop around for companies to compare their cost-per-square-foot for building a foundation.

To build a modular house, you will probably need a construction loan. If you require more time than it will take to build the new home to pay off your loan, as most will, you want to choose a construction loan with an option to be converted to a traditional mortgage after the home is built, such as a construction-to-permanent loan.

Modular homes have a variety of building strategies that add up to a reduced environmental impact. In the building process, they have a lower carbon footprint because you don’t have to transport individual materials for a house. The home is transported in units once it’s ready. This means fewer trips in a vehicle to build a home.

Modular homes also avoid some of the gaps between construction materials that can happen with site-built homes when wood gets wet in weather in rain or snow. Building homes in factories can increase the quality of sealing materials and energy efficiency. In addition, modular green homes may use eco-friendly materials such as sustainable wood and non-toxic insulation, as well as recycled steel or glass. Solar features and low-impact landscaping are optional. You can customize almost every feature.

Of course, both traditional and modular homes may have energy-efficient features, such as the windows or air conditioning units chosen.

Dig deeper: Reduce your carbon footprint by building a tiny home

  • Modular homes are highly customizable to get the exact features you want.

  • They are often less expensive than site-built homes.

  • They qualify for lending options that manufactured homes don’t.

  • Modular homes are built with less environmental impact and naturally are more sustainable than most stick-built homes.

  • You may have to get a construction loan first.

  • You might not be able to find or build one in the neighborhood you’d like.

  • You must be exact about what features you want since you must decide on most features and fixtures before construction begins.

  • Modular homes cost more than manufactured homes.

The terms “modular,” “manufactured,” and “mobile” homes are often used interchangeably. Although they are all prefabricated homes (also called prefab homes), there are key differences.

Mobile homes and manufactured homes are very similar. Mobile homes are just manufactured homes that are older — built before June 15, 1976.

According to the U.S. Department of Housing and Urban Development (HUD), manufactured homes and mobile homes don’t require you to own the land on which they are built. You can buy one and choose to either lease or buy a piece of land for your home to sit on. If you decide to move elsewhere, you can move your home to another location. You must buy land to own a modular home, as it’s installed on a foundation.

A manufactured home could cost half as much as a traditional house, and they’re typically more affordable than modular homes.

Dig deeper: Modular versus manufactured home — What’s the difference?

A modular home is just one housing option. See if another kind of home is a better fit for you.

A modular home is a house that is built off-site over several months and assembled on a foundation in a few days.

Whether a modular house is right for you depends on whether you are willing to take out a construction loan and the style and features of the home you want. Consider features such as square footage, curb appeal, and sustainability options like ethically sourced wood.

Modular homes are often cheaper than traditional ones but can fit within a traditional home’s community. They are also available in a variety of sizes and styles.

This article was edited by Laura Grace Tarpley