Although buying a modular home can save you 40% on labour costs, it’s still an endeavour that, for most, will require financial aid. We’ve put together this step-by-step guide to modular home financing that will help you along the way to building your dream home.
Similarly to tradition builds, your bank will issue a construction to permanent loan for your modular home project. This two-stage loan will remain a construction loan until your build is completed and receives its final appraisal, at which point it will become a permanent loan – your mortgage.
Step 1: Get a Prequalification Estimate
The first step in buying a modular home is: knowing your budget. A prequalification estimate will let you know roughly how much the bank is willing to loan you to finance your modular home. Although the estimate is not legally binding, if you provide accurate, honest answers, it will be a good indication of your available budget. Be sure compare quotes from multiple banks to get the best rates possible.
Once you have your estimate, you can go ahead and plan your home within your price range. Don’t forget to check out these free modular house designs for some inspiration.
Step 2: Apply for Modular Home Financing
You’ll need to prepare some documents once you’ve decided which modular home you want. These include tax returns, project blueprints, and proof of employment. Modular home financing is very similar to loans for a stick-built home. The checklist will be almost identical, but if the bank is unfamiliar with modular it may take longer to verify information.
If your application is approved, you can get a loan commitment — a document many modular contractors and manufacturers need before signing a contract.
Step 3: Make a Disbursement Schedule
Before closing the loan, the bank will want to see when and how you plan to pay everyone involved. You don’t want to pay builders and contractors for work that has not been completed. Instead, an appraiser will approve a timeline of payments for each step, or “milestone”, of the construction process.
Any changes made to the payment schedule after your loan gets approved won’t be covered. Luckily, modular home construction is less at risk for building errors than conventional building and therefore more likely to follow the original schedule.
Step 4: Close your Loan
With a closing agent or lawyer, you will review the final loan documents. You should also check if you received a government building permit. The relevant paperwork will be signed, and closing fees settled.
Step 5: Build your home
From a modular home financing standpoint, the faster you build, the better. You can’t begin making payments against the principal until your loan is converted to a mortgage — when the house is complete.
Luckily, builders can construct modular homes surprisingly fast. As crews build, disbursement payments will be drawn as milestones are verified. Once the completed structure is appraised for correct value, work completed, and existing liens, your construction loan becomes a permanent loan, or mortgage.