Modular homes are built in sections, known as “modules,” then transported to the building site and put together in your chosen configuration. Buying an existing modular home is no different than buying any other type of home. However, designing, installing, and financing a modular home is not quite as simple. Nevertheless, acquiring a new modular home is faster, easier, and more cost-effective than constructing a traditional stick-built home from the ground up.
Perhaps you’re in the market for a house, but you haven’t found a good fit yet. In one, you don’t like the kitchen placement. In another, you’d have to do considerable remodeling to mold it to your taste. Maybe building a custom home is the answer, but the building process — managing a team of architects, engineers, and construction workers — is a giant undertaking. If you’re not up to the hassle, but still want a home that’s customized expressly for you, a modular home might be just the ticket.
Modular homes tend to offer a wide variety of sizes and styles to choose from, and it can be a more environmentally friendly choice than traditional construction. For these reasons and more, it’s worth taking a closer look at modular home manufacturers and why a modular home might be the right choice for you.
What is a modular home?
It’s all in the name. Modular homes are built in sections, known as “modules,” then transported to the building site and put together in your chosen configuration.
One home type, three names: factory-built, prefab, or modular
Modular homes are also known as factory-built homes or prefabricated (prefab) homes, and they’re constructed in factories that assemble them in accordance with the International Residential Code (IRC). The IRC requires modular home builders to comply with state and local building codes, just like stick-built houses.
Once they are attached to the foundation, the rest of the process is much like the construction of a site-built home. The house will be hooked up to utilities, and the appliances, cabinets, and flooring will be added.
But don’t call them manufactured or mobile
Not to be confused with mobile or manufactured homes, modular homes are simply built off-site and then relocated to the home site where they are attached to a permanent foundation. Unlike mobile homes, modular homes are built to stay put. Once they’ve completed the home building process and been installed, they are considered permanent structures and are nearly indistinguishable from traditionally built homes.
Modular homes are built in climate-controlled factories, as opposed to on-site, and they must adhere to state and local building codes just like conventionally constructed houses. Modular buildings can also be used for commercial applications, such as office buildings, but for the purposes of this article, we will concentrate on residential modular buildings.
Abundant styles make them hard to describe
It’s difficult to say what they look like, exactly, because the styles and sizes are so varied. And by taking customization even further — big windows, high ceilings, second stories — almost any style of home is within reach. Rustic log cabin, classic Cape Cod, ranch, modern — take your pick.
Modular home cost
Typically, modular homes cost 10% to 20% less than regular homes and they are built 30% to 60% faster. Although the costs to build a modular home vary depending on where you live, this should give you an idea of roughly what you can expect to pay to have a modular home built.
Example: 1,500 square foot modular home
As an example, let’s imagine you are buying a 1,500 square foot home.
While constructing a site-built home starts at about $150 per square foot (and goes way up from there), modular homes range from $50–$100 per square foot for the unit itself. A fully installed unit costs between $80 and $160 per square foot, so you will be paying between $120,000 and $240,000 for the modular home. More if you have significant upgrades.
Further, you will need to factor in other requirements for the home, such as utility hook-ups and access to water, sewer, and electricity. These costs may be included in the “fully installed” quote, but it’s important to know this ahead of time. The costs also vary widely depending on where your home is located and how easy it is for the utilities to be accessed.
You also need a foundation for the home and, depending on whether you choose a crawl space or a basement, you’re tacking on roughly another $10,000 to $30,000.
Financing a modular home
When you’re buying a modular home that already exists, financing a modular home is just like financing any other built-on-site house. But it gets a little more complicated when you’re having a new one built and installed.
One important consideration is whether you need to buy the land or already own it. If you already own it, great, but if not, you will need to talk to a bank or other lender. Many mortgage lenders have multiple options for modular home buyers, which could include financing the land and home together. Or, if you’re not ready to buy the house just yet, you can get a land-only loan for now.
Here are some options to consider.
Conventional loans include any mortgage the federal government doesn’t back. There are two types: conforming and nonconforming loans. Conforming loans can be sold in the secondary mortgage market to Fannie Mae or Freddie Mac.
Conventional loans are often used to finance modular homes. However, you will need a good credit score to qualify for the best rates and terms. You will also need a 20% down payment. If you can’t afford the down payment you will need to pay for private mortgage insurance.
FHA loans are mortgages that are backed by the Federal Housing Administration (FHA). Because of this, they are easier to qualify for than conventional loans. If you have poor credit or you can’t afford (or don’t want to pay) a down payment of more than 3.5%, an FHA loan could be a great solution to finance a modular home. Click here for a list of FHA lenders.
VA loans are mortgages backed by the Department of Veteran Affairs. They are available for service members, qualified veterans, and their spouses. The great thing about a VA loan is you can use it to buy the modular home and the land where you plan to build it.
Veteran Affairs loans don’t have minimum down payment requirements and you don’t have to pay for regular private mortgage insurance. However, there are other eligibility requirements to consider. Here is a list of VA lenders to compare.
Another option to think about, if you already own the home site, is getting a construction loan that can be converted to a conventional fixed-rate mortgage after the house is fully installed and move-in ready. Keep in mind, not all lenders have a ton of options for financing the construction of a modular home, so you’re going to want to shop around. You will also need to provide detailed plans on how the modular home will be completed. Lenders will also need to approve the company you are using to build the home.
While it will not be your best option if you qualify for a conventional or government-backed mortgage, you can also finance a modular home using a chattel mortgage. Frequently used for mobile and manufactured homes, the fact that modular homes start out as movable personal property (then turn into real property when put together and affixed to a permanent foundation on your piece of land) does make this option available if better deals elude you. You can only finance the home itself this way, however, not the land.
Benefits and downsides of modular homes
Here is a list of the benefits and the drawbacks to consider.
Like with any big purchase, it’s important to explore the pluses and minuses of what you’re getting into when buying a modular home. Let’s take a deeper look.
Pros of modular homes
- Faster: Modular construction is quicker than conventional home building. Because they’re built off site in giant, climate-controlled factories, they can be made year-round without any weather delays. Portions that would take months for traditional construction might only take weeks to complete with modular home builders.
- Lower cost: It can often be less expensive to construct modular houses as opposed to site-built homes, but it’s important to factor in all of the costs associated with a modular home before making your decision. There are many other considerations besides the house itself.
- Customization: Build it as you want it. Modular homes allow for a ton of customizing. There are different styles and sizes and floor plans to choose from, and you can personalize them even further if you like. Want granite countertops, high ceilings, and hardwood floors? Not a problem. Take it a step further and consider if you want a fireplace (or two) and maybe a front porch or back deck.
- Energy-efficient: Modular homes are built with an eye toward energy efficiency. This can save you money on heating and cooling bills down the road. And with customization options, you can make it even more energy-efficient, such as by adding solar panels.
- Environmentally friendly: Modular homes are considered green buildings and modular home builders strive to employ environmentally friendly building materials and practices. Another benefit is that factory building, by nature, creates less waste than traditional construction.
- Better construction: In some cases, modular houses are better constructed than traditional stick-built homes. Because of the factory setting, there are certain quality controls and standards that must be met, which are not always present in other types of construction. And not being built outdoors means the structure isn’t subjected to rain, snow, and wind, which can all have an effect on the finished product. Plus, modular homes are required to use the same building codes as site-built homes.
Cons of modular homes
- Buying land: You need a place to put your new home, of course, so you have to purchase the land it will sit on. Be sure to check zoning laws first, as there can sometimes be restrictions. A real estate agent can also help you with this part of the process.
- Other costs: You need to factor in costs that are not included in the base price of a modular home when determining the full price of the house. For example, you will need to have a foundation poured and get your utilities hooked up, including electrical, plumbing, and sewage. It’s also important to consider things like whether you will need to fashion a driveway and if you plan on having a garage.
- Financing issues: While traditional mortgages can be used to finance a modular home, it can be tricky. You may need to get a construction loan at first and then convert that into a long-term, fixed-rate mortgage.
- Stigma: There are people who think modular homes are the same as mobile homes, which could make it more difficult to sell one day. Some people have preconceived notions that modular homes aren’t as sturdy or well constructed as site-built homes. Talking to modular home companies and third-party experts about these issues can help to ease your mind about the safety and quality of a modular home versus a site-built home.
Manufactured home vs. modular home
While a modular home is in fact manufactured, it’s not technically a “manufactured home,” or mobile home as it was officially called prior to 1976. (And still is by many people.) Manufactured homes, for example, are not built on a foundation and can be moved, unlike modular homes, which are permanent structures.
In fact, while modular homes are considered real property (once in place on your property), mobile homes are characterized as movable pieces of personal property (unless they become permanently attached to a foundation). And, much like a vehicle, a manufactured home is taxed differently and tends to depreciate.
Real vs. personal property
It’s not the home type, but whether it’s affixed, that matters. The reason people routinely say “modular homes are real property” and “mobile homes are personal property” is that the former are normally (read: whenever someone wants to live in one) affixed to land with a permanent foundation while the latter normally aren’t.
To be precise, it’s the affixing to land with a permanent foundation that makes either type of home real property, not whether the home is modular or mobile (manufactured). While modular homes definitely offer superior quality and durability to manufactured homes, that’s not what makes them real property.
The homes also vary in where they can be located. Zoning laws often only allow manufactured homes to be put in certain places such as designated parks (where someone else owns the land) or rural areas. Once modular homes are permanently affixed to a foundation, they’re essentially and legally the same as homes built on-site.
Here are some essential pointers to keep in mind as you shop for a modular home.
- Get pre-approved: If you need financing, get your ducks in a row before you start. Talk to a lender and find out what your total budget is. As is the case when buying a traditional home, you will want to gain pre-approval for a loan before you start searching.
- Do your research: Most modular home companies will give you a free quote, so don’t be shy about talking to several different ones. Be sure to get outside references about the builder, too. Can you see some of their past projects or talk to people who’ve used this business? A real estate agent or lender might have some contacts you can talk to about this.
- Get it in writing: Be sure to find out exactly what is included in the base price of the home. You might be surprised to find out what is and is not covered by the base cost. Also, find out what you need to pay upfront and what you will pay upon completion. It’s important to protect yourself by getting your quote and all other pertinent information in writing.
Are modular homes cheaper?
Yes, modular homes are typically cheaper than traditional houses, but not always. In their infancy, modular, or prefab, homes were a much more affordable alternative, but they often came with lower-budget cosmetic features. Cabinets, flooring, and trim, for example, may not have been of the highest quality, which kept costs down for the consumer.
These days, however, modular homes are so completely customizable that the cost can easily be driven up by the features you choose. Still, when you compare customized site-built construction with modular houses that are equally customized, you’ll see savings, in cost as well as time, in the modular homes.
How long do modular homes last?
Modular housing is built with quality materials and must stand up to rigorous inspections. Furthermore, because modular homes are built in accordance with local zoning codes and regulations, they typically last just as long as site-built homes, if not longer.
Is a modular home a good investment?
Theoretically, a modular home should be just as sound of an investment as a conventional build, but there is still some stigma attached to prefabricated housing. This could affect its resale value down the road, because some people equate modular construction with mobile homes, despite their differences. However, experienced real estate agents should know how to market modular dwellings and explain the important distinctions to potential buyers.
How are modular homes attached to foundations?
Modular homes must be affixed to either a crawl space or a basement. Concrete slab foundations are not usually used for modular homes, as they need space underneath the house for plumbing, electrical, and HVAC connections.
Additionally, the foundation must have attachment points where the home can be securely fastened to the foundation per requirements from the Department of Housing and Urban Development (HUD).
- Modular homes are often a more cost-effective way to buy a custom home than traditional construction.
- Factor in other costs, such as utilities, a driveway, or a garage, when determining your budget.
- A modular home builder can offer more than just the home itself — ask about other services.
- Modular homes are often considered green buildings because they typically have fewer negative effects on the environment.
A modular home and the right financing could put a custom home within reach
Building a custom home is a big process. You need a team of architects, engineers, and contractors to complete the operation, not to mention time and a deep wallet. However, if your heart, but not your budget, is set on a customized home, a modular home might be the right choice for you.
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View Article Sources
- Factory Manufactured Buildings (Modular) — New York Department of State
A place to look if you’re curious what regulations modular home builders have to contend with in the state of New York.
- Manufactured Housing, Modular Housing, and Zoning — The University of North Carolina at Chapel Hill
A glimpse into zoning issues posed by modular and manufactured homes in the state of North Carolina.
- Permanent Foundations Guide for Manufactured Housing (4930.3G) — HUD
- Steel, Modular Homes and an Opportunity to End the Housing Shortage — Steel Framing Industry Association
Could steel-framed modular homes end the housing crisis? One industry association thinks so.
- The International Residential Code — International Code Council (ICC)
- What are Modular Homes, and Why are There So Many of Them in Orlando, FL? — Florida Manufactured Housing Association (FMHA)
- How to Buy a House at Auction: Step-by-Step Guide — SuperMoney
- How to Finance a House — SuperMoney
- Nuts-and-bolts modular home basics from a Florida-based nonprofit.
- Home Purchase Mortgages: Reviews & Comparisons — SuperMoney
- How to Buy a House — SuperMoney
- What Is a Chattel Mortgage? — SuperMoney