Modular home moving to final location.

What Is A Modular Home? Definition, Pros, Cons And How To Finance

December 21, 2023 6-minute read

Author: Kevin Graham

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Maybe you want a brand-new home, but you don’t want to draw up a blueprint and wait months for it to be constructed from scratch. A modular home combines the ease of getting something prefabricated with the financing options available for traditional stick-built homes. But what is a modular home? This article will go over all the ins and outs.

What Is A Modular Home?

Modular homes are customized, prefabricated homes built offsite in a climate-controlled factory. Individual sections (called modules) are then transported, usually in a semi-truck, to the property. Once there, the house is assembled on a permanent foundation. When the house is constructed, you’re likely not able to tell the difference between a modular home and a traditional house.

Since they are built on a permanent foundation, modular homes are permanently affixed as real property. That means you can benefit from financing it just as you would a traditional mortgage.

Modular Vs. Manufactured Homes

It’s important to understand the distinction between modular homes and manufactured homes. Both are under the umbrella of prefabricated homes, but that’s about the only commonality between the two.

Manufactured homes are now what were widely referred to as mobile homes before 1976. As mobile homes increased in popularity as a viable permanent housing option, the U.S. Department of Housing and Urban Development (HUD) established new regulations via the Federal Manufactured Home Construction and Safety Standards code. New mobile homes built according to these regulations would now be referred to as manufactured homes. To this day, manufactured home construction remains the only federally regulated type of home construction on the market.

Unlike modular homes, manufactured homes typically can’t be financed with a traditional mortgage. If not permanently attached to the foundation tied to the land, these have to be financed with a mobile home loan because without the underlying land value, they tend to depreciate like cars.

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Pros And Cons Of Modular Homes

Whether you’re debating manufactured versus modular homes or are simply considering a more sustainable option than a stick-built house, there’s plenty to consider before taking the plunge.

Advantages Of Modular Housing

Here are some of the pros of owning a modular home:

  • Sustainable construction: One of the largest benefits of modular construction is reduced waste. Because companies can order supplies in bulk to a single location, the environmental impact of transporting small batches of varying materials for an on-site build is lessened.
  • Affordability: Arguably the most compelling perk of modular homeownership is the bang for your buck. While they are virtually indiscernible from stick-built homes, they are considerably cheaper to build.
  • Earlier move-in date: A modular home can be constructed in weeks rather than months or years compared to an on-site construction.
  • Traditional mortgage options: Lenders appraise modular homes the same way they do on-site builds. That means you can expect the same competitive interest rates, insurance premiums, taxes and loan options as traditional houses. All the standard options are available, including conventional loans, FHA loans and VA loans.
  • Customizations: Manufacturers often have various floor plans available for you to mix and match to meet your specific needs. The interior can be designed however you like – rustic, modern, log cabin and so on.
  • Energy efficiency: Modular homes are often constructed to be more energy efficient than their stick-built counterparts. You’ll feel the effects when your monthly utility bill arrives. Plus, their highly customizable nature allows you to opt for home solar panels and other energy efficient options.

Disadvantages Of Modular Housing

Modular homes aren’t for everyone. If the following considerations are giving you pause, one may not be the right fit for you.

  • Land: Since modular homes are immovable, it doesn’t make sense to build on rented land. If you’re building a modular home from scratch, you’ll need to buy and prepare land before you can install your home.
  • Upfront costs: While a manufactured home owner could just rent land with no upfront costs, you’ll need to prepare to spend more upfront. Preparing the land alone may cost $4,000 – $11,000 between surveying and excavation work if it’s undeveloped land.
  • Zoning restrictions: As popular modular homes might be, they make up a small percentage of homes in the U.S. Many cities either have outdated or an absence of zoning laws, which can make finding appropriate land difficult.
  • Construction loan: You’ll likely need a construction loan to afford the manufacturing of your new home. Those may require a 20% – 25% down payment and can be converted to a permanent mortgage after construction. Rocket Mortgage® doesn’t do construction loans, but we can help you with permanent financing.

How Much Does A Modular Home Cost?

On average, a modular home costs $100 – $200 per square foot according to data from HomeAdvisor by Angi. This equates to a typical range of $180,000 – $360,000 total for a modular home.

That said, it’s hard to put an average overall price on modular homes because they can vary widely in size and price. You may opt for a tiny home under 400 square feet or build a 2,500-square-foot home. Additionally, there are numerous upgrades you can make to a modular home that will also increase the price, such as building a deck, adding a garage, installing a fence and building a basement.

You’re not just paying for the base home itself, either. Often, you’ll need to buy land before installing the prefab home. If that land isn’t primed for a house, you may need to spend more money leveling and removing trees from the property. Then you’ll need to connect utilities and pay for the installation itself. Still, it may be a more affordable option than a traditional home.

How Is A Modular Home Built?

A modular home is built in pieces in a factory. It’s then transported to the land on which it will rest. A foundation is poured. The different modules are anchored to the foundation and put together. A local home inspector will have to come in order to make sure the finished home conforms to local building codes.

How To Finance A Modular Home

The way you finance a modular home depends on whether you’re building it or buying one that already exists.

To Build A Modular Home

If you’re building a modular home, you’ll need a construction loan and maybe a land loan if the property hasn’t already been acquired. Construction loans are going to come with higher down payments. As a reminder, Rocket Mortgage doesn’t offer these loans. However, once the house is built, you’ll need to convert your loan to a permanent loan, which we offer.

To Buy A Modular Home

Buying a modular home that’s already been constructed is just like buying a stick-built home. You’ll go through an initial mortgage approval process so that you know how much you can offer, providing things like W-2s, tax returns, pay stubs and bank statements.

FAQs About Modular Homes

Still undecided if a modular home is right for you? Here are some answers to the most frequently asked questions to help you learn more.

What’s the difference between a modular home and a traditional home?

Traditional homes are built completely onsite. On the other hand, modular homes are partially constructed in a factory and then transported and assembled on a permanent foundation on the owner’s land.

What is another name for a modular home?

The terms “modular home,” “manufactured home” and “mobile home” are sometimes used interchangeably, but there are important distinctions among them. Modular homes are held to the same building codes that stick-built homes are, and they are assembled on a permanent foundation. Manufactured homes, known as mobile homes before 1976, comply with federal HUD codes and can be moved.

Do modular homes appreciate in value?

Modular homes tend to appreciate in value similarly to the way traditional, stick-built homes do. This means the value of modular homes can also decrease with fluctuations in the real estate market.

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The Bottom Line

A modular home is one with various parts made in a factory before being put together on-site. It’s much faster and can be more cost-effective than a traditional stick-built home. At the same time, the financing options are similar to traditional homes and you can get a standard mortgage.

If you would like, you can start a mortgage application online or give us a call at (833) 326-6018.

Kevin

Kevin Graham

Kevin Graham is a Senior Blog Writer for Rocket Companies. He specializes in economics, mortgage qualification and personal finance topics. As someone with cerebral palsy spastic quadriplegia that requires the use of a wheelchair, he also takes on articles around modifying your home for physical challenges and smart home tech. Kevin has a BA in Journalism from Oakland University. Prior to joining Rocket Mortgage, he freelanced for various newspapers in the Metro Detroit area.