Modular house being constructed.

Modular Homes: How Can I Finance One?

4-Minute Read
Published on January 11, 2022
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If you're constructing or buying a new modular home, there are many things to think about. But one of the biggest things you need to consider is how you’re going to pay for it.

Modular homes are more affordable than traditional homes, but the application and financing process is very similar. This article will explain more about your options for modular home financing.

What Is A Modular Home?

The primary difference between a modular home and a traditional home is how they are constructed. While traditional homes are built on-site, a modular home is built in a factory setting.

Instead of building the home all at once, modular homes are built section by section. Once the sections are completed, they’re shipped to the permanent site where the house will reside. From there, a crew will assemble the modular home.

Modular homes are often confused with manufactured homes, but they aren’t the same thing. Modular homes are like manufactured homes in that they conform to the HUD’s standards. But manufactured homes – also referred to as mobile homes or trailers – are built in a factory on a steel chassis.

In comparison, a modular home has a permanent foundation and isn't mobile once it’s assembled. And while manufactured homes tend to depreciate in value, the value of modular homes will vary with the market.

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How Much Do Modular Homes Cost?

Many people like modular homes because they’re more affordable than buying a traditional house. The average modular home costs somewhere between $120,000 – $270,000, whereas the median home sale price is $324,900. However, the cost to build a modular home does not include the cost purchase and prepare the land you put the home on.

You can expect to pay $80 – $160 per square foot to construct a modular home. However, you’ll also have to pay for the site prep, foundation, delivery and construction of the house.

The exact price you end up paying for a modular home will depend on the design style and type. Opting for additional customizations will drive up the price higher, though you’ll still end up spending less than you would on a traditional home. 

Also, most banks and lenders offer financing on modular homes, meaning buyers will typically have a good range of mortgage options when it comes time to make a purchase.

Modular Home Financing Options

Before you start looking at potential homes to buy, you should take some time to think about how you’ll finance your new home. The type of modular home financing you choose will depend on your personal situation.

Here are a few options you can consider.

Conventional Loan

A conventional loan is any home loan that the federal government doesn’t back. These loans usually fall into two categories: conforming and nonconforming loans. A conforming loan is eligible to be purchased by Fannie Mae or Freddie Mac.

Conventional loans are a popular option for people looking to purchase modular homes. However, you’ll need a good credit score to qualify for the best terms and interest rates. And if you don’t have a 20% down payment, you’ll need to purchase private mortgage insurance (PMI).

FHA Loan

An FHA loan can also be used to purchase a modular home. The Federal Housing Administration backs FHA loans, so it’s easier for borrowers to qualify for these types of loans.

 

FHA loans are a good option for anyone with poor credit – you can qualify if your score is at least 580 or higher. You’ll also need at least a 3.5% down payment, and your debt-to-income ratio cannot exceed 50%.

VA Loan

The Department of Veteran Affairs backs a VA loan, and these loans are available for qualified veterans, service members, and their spouses. You can use a VA loan to buy a modular home and the land you plan to construct the home on.

VA loans don’t come with any down payment requirements, and you don’t have to pay for PMI. However, you’ll have to check with the VA to see if you meet the eligibility requirements.

Construction Loan

If you plan to build your own modular home, you can apply for a construction loan. A construction loan can be used to cover the costs of building a house. It’s a short-term loan, and the funds are available while construction is being completed.

But before you can get approved for a construction loan, you’ll need to show your lender detailed plans for how the modular home will be completed. And your lender will need to approve the company that is building the home.

Personal Loan

Since modular homes cost less than traditional homes, you may be able to finance the purchase with a personal loan. Most personal loans can be used for any purpose, so you can use them to buy a modular home.

However, there are some pros and cons to consider before going this route. The benefit of getting a personal loan is that you don’t have to put down any collateral. That means if you default on the loan, the bank can’t repossess your home.

And the application process for taking out a personal loan is much easier than applying for a mortgage. But personal loans come with higher interest rates than other types of loans. So you’ll pay more in interest over the life of the loan.

The Bottom Line

If you’re wondering how much a modular home costs, the good news is they are far cheaper than traditional houses. And there are many different modular home financing options you can consider.

Start by thinking about the type of home you want to buy and how much you expect to borrow. If you’re ready to begin the home buying process, you can get started today with Rocket Mortgage®.

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Apply online for expert recommendations with real interest rates and payments.

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Jamie Johnson

Jamie Johnson is a Kansas City-based freelance writer who writes about a variety of personal finance topics, including loans, building credit, and paying down debt. She currently writes for clients like the U.S. Chamber of Commerce, Business Insider, and Bankrate.