Modular homes are often misunderstood, but these homes are built to the standards of their site-built brethren, are typically more affordable, and go up faster.
Just like other homes, they may appreciate in value.
Read on to learn whether or not a modular home might tick all your boxes.
Table of Contents
Key Points
• Modular homes are factory-built in sections, assembled on-site, and must meet the same building codes as traditional houses.
• These homes are typically more affordable and faster to construct due to streamlined factory production and fewer weather delays.
• Modular homes can appreciate in value similarly to site-built homes, especially in areas where they’re common.
• Benefits include lower costs, quicker build times, and environmental efficiency, while challenges include zoning restrictions, financing complexity, and upfront costs.
• Factory-built houses are ideal for buyers seeking a faster, cost-effective, and potentially greener housing option than traditional site-built homes, but they require careful planning around land, loans, and regulations.
Characteristics of a Modular Home
Remember the Sears mail-order kit homes? The catalog, debuting in 1908, offered all the materials and blueprints to build a house. Sears had sold an estimated 75,000 kit houses by the time the catalog was discontinued in 1942.
They were prefabricated homes, meaning that some part or all parts were built in a factory. The term still applies to modular, panelized, and manufactured homes. (Kit homes are still sold and appeal to DIYers who don’t need a general contractor to handle everything.
Modular homes are born almost entirely in a factory. Box-like modules — complete with walls, floor, ceiling, wiring, light fixtures, cabinets, and a heating, ventilation, and air-conditioning system — are trucked to the homesite, lifted by crane, and put together.
Manufactured homes, formerly called mobile homes, are also built in a factory and meet a federal code, but modular homes must meet the same state and local building codes as stick-built homes. They’re permanently attached to a standard foundation and are real property.
Modular houses come in a huge variety of designs and styles, from accessory dwelling units (ADUs) to three-bedroom homes with sleek, contemporary designs. Many companies offer a menu of layout options, and buyers may be able to customize features.
Recommended: Guide to Buying, Selling, and Updating Your Home
Pros and Cons of a Modular Home
Here are some upsides and downsides of modular construction.
Pros
Speed: A modular home or apartment building can go up in around half the time — or sometimes even faster — compared to similar site-built residential structures. While conventional, on-site construction of a single-family home typically takes 9-12 months or more, modular projects are often completed in as little as 3-4 months. The modules are built off-site while the foundation is being prepared. Weather delays are far less of a concern.
Lower Cost: Modular homes are typically cheaper than stick-built homes. The climate-controlled factories are specialized, and production processes are streamlined.
Greener: Modular construction results in fewer carbon emissions than traditional building methods. It requires less transport of workers and materials and fewer carbon-intensive products, such as concrete and steel. Producing buildings in a factory setting promotes recycling and reuse. In addition, modular buildings can be designed to achieve Leadership in Energy and Environmental Design (LEED) certification.
Possibility of gaining value: A well-built modular home, like any stick-built home, will tend to appreciate. The value holds up better in communities where modular homes aren’t uncommon.
A way to ease the housing crisis: Urban cities are looking at prefab housing to mitigate the U.S. housing shortage, and prefab-housing startups have sprouted nationwide. MiTek, a startup owned by Warren Buffett’s Berkshire Hathaway Inc., is, it says, “making modular mainstream.” It plans to ship kits of manufactured building parts to be assembled by general contractors. Former President Joe Biden and Vice President Kamala Harris updated a plan to increase the housing supply in August 2023, pledging the construction of more than 2 million new homes. That plan included modular housing.
A smarter way of doing business: PulteGroup, the country’s third-largest home construction company, is investing in off-site manufacturing of parts for a percentage of the homes the company builds each year. A lack of labor has been the biggest challenge facing contractors. Modular construction can help a company do more with fewer workers.
Now for the not-so-great news.
Cons
Zoning hurdles: Modular builders face pushback from many cities, as off-site construction isn’t mainstream and each city has its own zoning laws.
Financing: If modular homebuyers can’t pay cash, many will have to finance the build with a construction-only or construction-to-permanent loan (aka one-time-close loan). The down payment on land and the home for a construction loan will often be up to 30%, unless it’s one of the government-backed loans described below. A modular-home buyer who already owns the land can use the land as equity and may be able to borrow all of the construction cost if they meet the criteria for the loan.
You and the contractor usually need to be approved for the loan. Money is disbursed based on a draw schedule. Payments are typically interest only and start out small.
With the construction-to-permanent loan, some lenders, for a fee, will let you lock in a fixed rate with a “float down” option if rates have fallen. If you choose a variable rate, you’ll pay the current rate when the mortgage converts.
A two-time-close loan is composed of a short-term loan for the construction phase and a permanent mortgage for the completed home. You’re essentially refinancing when your home is complete. You’ll need to be approved and pay closing costs, but the rate could be better. In most cases, you can compare other lenders’ offers to get the best rate and terms on the permanent mortgage.
An FHA one-time close loan is a government-backed home loan program that applies to modular homes and the land. The minimum down payment is 3.5%.
A VA one-time close loan allows eligible service members to finance modular construction, lot purchase, and permanent mortgage with no money down.
A personal loan, sometimes for up to $100,000, could fund part of the modular construction or the purchase of the land. Keep in mind that unsecured loan rates are higher than rates on secured loans.
Qualified homeowners may be able to use a home equity line of credit (HELOC), home equity loan, or cash-out refinance to give rise to their modular aspirations.
HOA blockage: Some homeowners associations may not allow modular construction in the neighborhood.
Contractor expertise: Unless you have construction chops yourself, you still have to find a contractor. You’ll also need to secure a piece of land if you don’t own the land already.
All the extras: Among the disadvantages of modular homes is the difficulty of determining the total price. Buyers pay not only for the home but also for the land, foundation prep, and transportation.
Possibly a big upfront payment: A builder may want payment in full before construction begins.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
Questions? Call (888)-541-0398.
Finding a Modular Home
You may want to search for “modular home companies by state” or “prefab homes by state.” Of course, there are Facebook and Reddit modular discussions. Word of mouth is another avenue to find a modular home builder.
Some modular home manufacturers sell directly to homeowners, and others work through a network of retailers.
At least one modular company has developed factory relationships across the U.S.
Keep in mind that this style of construction is still pretty rare, at least in this country. In 2024, only 28,000 single-family U.S. homes were built using modular or panelized construction methods. That’s about 3% of the total market share for off-site construction that year.
Recommended: Home Affordability Calculator
Who Should Get a Modular Home?
People who want a new home up and ready more quickly and at a lower cost than a stick-built home might be smart to think modular.
Environmentally conscious buyers might find modular construction a breath of fresh air. Folks who want a modern ADU for a primary residence or vacation home might want to go modular.
People who appreciate efficiency and innovation might be drawn to modular construction.
It helps to already own the land. If you don’t, and this won’t be a cash deal, it’s important to understand the pros and cons of construction loans and other financing options.
The Takeaway
Modular homes are faster to complete and less expensive than site-built homes, but perceptions and financing can be challenges. If you do plan to build even an ADU out back, check your local zoning, compare modular vs. stick-built construction, and know your terms (manufactured vs. modular, real property vs. personal property). It all can be confusing.
SoFi can lend a hand. Do you plan to use a construction-only loan and need a permanent mortgage after the build is done? SoFi offers mortgages with competitive rates and a variety of repayment terms.
SoFi also offers personal loans of $5,000-$100,000, which could fund the land or more, and brokers a HELOC that may allow you to access up to 90% of your home equity to fund your modular vision.
SoFi offers flexible HELOCs. Our HELOC options allow you to access up to 85% of your home’s value, or $350,000, at competitively lower rates. And the application process is quick and convenient.
FAQ
What is a modular home, and how is it different from a manufactured home?
A modular home is built in factory-made sections and assembled on-site, meeting the same state and local building codes as traditional stick-built homes. Unlike manufactured (mobile) homes, modular homes are permanently attached to a foundation and classified as real property.
Are modular homes cheaper and faster to build than traditional homes?
Yes, modular homes are typically more affordable due to efficient factory production and streamlined processes. They can also be completed much faster, often in a few months, since construction and site preparation happen simultaneously with fewer weather delays.
What are the main challenges of buying a modular home?
Buyers may face zoning restrictions, limited acceptance by some homeowners associations, and more complex financing options, such as construction loans. Additionally, total costs can be hard to estimate due to land purchase, site preparation, transportation, and possible large upfront payments.
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