You can order anything on the internet these days—even a house. But as with other online purchases, it’s a good idea to do some research first.
Kit houses are often considerably more affordable than a new home custom built from the ground up. And just like other homes, they have the capacity to appreciate in value (though it’s not guaranteed).
Read on to learn whether or not a kit home might be the right investment for you.
What Is a Kit Home?
Kit homes, or modular homes, are sent to buyers in pieces so they can construct the building themselves (albeit usually with professional help). Think of it like an IKEA purchase, except you’re buying the whole house, not just a set of drawers… and you might need a crane to get the pieces together.
Remember the Sears mail-order kit homes? The catalog, debuting in 1908, offered all the materials and blueprints to build a house. Sears is estimated to have sold around 75,000 kit houses by the time the catalog was discontinued, in 1940. Many of the homes are still standing.
These days, kit houses come in a huge variety of designs and styles, from one-room log cabins to three-bedroom homes with sleek, contemporary designs. Many companies offer a menu of layout options, or buyers may be able to customize the features of a kit home before it’s sent to the construction location.
(Note: Kit homes are different from mobile homes. They’re built on a standard foundation, just like any other “brick-and-mortar” house, and cannot be moved to a new location once they’ve been installed.)
How Much Do Kit Houses Cost?
Case in point: According to HomeAdvisor, the average modular home costs $40 to $80 per square foot in and of itself. But with all of those other factors considered, the organization estimates that modular homes end up costing $100 to $200 per square foot, which works out to a range of $180,000 to $360,000 for a 1,800-square-foot home—or $270,000 on average.
That doesn’t count any land purchase, property taxes, or furnishings. So make no mistake about it: Even with a kit, building your own home is an expensive venture.
As with any other kind of house, a kit home’s cost depends in part on its size, design, and quality of materials. And while you can find kit home shells online for shockingly low prices, it’s important to understand that the cost of the kit home is just the start of the total building project cost.
A buyer must also consider any shipping cost and taxes, the cost of the foundation, the cost of preparing the property to be built on (including clearing the land, connecting to the grid, digging wells, and installing septic, if necessary), and, usually, the labor costs of actually putting the home together.
That said, HomeAdvisor estimates that the cost of building the same size custom home from scratch using contractors ranges from $350,000 to more than $1 million. So if you have an undeniable urge to DIY your homeownership venture, a kit house might well be the more affordable option. Just remember, either way, it won’t be cheap!
Furthermore, whether or not a kit home ends up being a more cost-effective choice often depends on location. While kit houses are almost always cheaper than homes designed by contractors when you’re living in an urban area, for those in rural zones, it may be cheaper to do it the old-fashioned way.
Recommended: Home Affordability Calculator
Do Kit Homes Hold Their Value?
One of the main reasons many people choose to become homeowners is to put money into an asset that has the capacity to appreciate in value over time. That way they can feel assured that the money they’re spending to keep a roof over their heads isn’t disappearing into the ether and that they can sell the home later and make a profit.
The good news: Many real estate professionals agree that kit or modular homes can appreciate in value over time and are often appraised similarly to stick-built homes (as opposed to mobile homes, which often depreciate in the same way that vehicles do).
But as with all things in life, and particularly in money, nothing is guaranteed. A kit home’s existing and ongoing value will depend on its location, quality, and level of maintenance, and just like other houses, might benefit from home improvement projects before selling.
Recommended: Renovation and Remodeling Cost Calculator
Can You Finance a Kit Home?
Even with their relatively low costs, kit homes are often expensive enough that most buyers will be unable to pay in cash and will need to finance the project. However, because a kit home is not an existing structure, the most common route for financing is a construction loan rather than a traditional mortgage.
Construction loans work differently than mortgages do: They’re much shorter-term loans, generally needing to be paid off in a year or less—although construction-to-permanent loans, which roll over into a traditional 15- or 30-year mortgage once the home has been constructed, do exist.
Construction loans can also be used for significant home renovations, such as building a home addition. For smaller home improvement projects, a personal loan will often suffice.
Keep in mind that because construction loans don’t come with collateral (i.e., an already-standing home structure) for the lender to repossess should the loan agreement fall through, they can be harder to qualify for than traditional mortgages.
Recommended: How Do Construction Loans Work?
Kit homes allow buyers to avoid the costs of a custom stick-built home by delivering blueprints and materials to put a house together. But the base price of a modular home is just one part of the total expense.
Whether your homeownership journey involves a kit home or contractors, or you opt to purchase an existing home, SoFi offers financial products that could help make your dreams a reality.
SoFi offers a range of mortgages with competitive rates and a down payment as low as 5%, and also offers no-fee, low-interest personal home improvement loans of up to $100,000.
Either way, you’ll open the door to a host of exclusive member benefits.
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