What to Know About Buying a Modular Home

If you’re house-hunting in a hot market, you may have wondered: “Why don’t I just build?”

Choosing a modular home can save you money and time, compared to traditional construction methods. According to the National Association of Home Builders, a typical modular build can be move-in ready in as little as three months. That’s less than half as long as it takes, on average, to complete a traditional single-dwelling building, based on 2021 data from the U.S. Census Bureau.

Modular homes can be more environmentally friendly, too. According to the Modular Home Builders Association, since they’re built in a factory, they produce about half as much construction waste as site-built homes.

However, just like a traditional build, prepare to manage a lot of details and decisions along the way. You still have to research contractors and buy a suitable lot. And if you can’t pay cash, you’ll likely need a construction loan, which can be harder to get than a typical mortgage.

But let’s be honest: You’re probably up for the extra work, or else you wouldn’t be feeling the itch to build.

Modular homes are one of many types of prefabricated, or “prefab,” homes. This means that some (or all) of the home was built in a factory. As the name suggests, a modular home is made up of large, three-dimensional pieces known as modules. These are built indoors, then shipped to your building site.

That’s different from traditional construction, also called “site-built” or “stick-built.” In this method, your home is fully constructed at the building site.

Prefab homes get a bad rap for being flimsy or cheap. However, with most modular homes, that’s not the case. Modular homes follow state and local building codes and are affixed to a permanent foundation, just like site-built homes.

You might be surprised to know that modular homes can be customizable, too. Your builder will offer a range of floor plans and designs to choose from, and you can personalize from there.

Modular and manufactured homes are both pre-built in factories, but they have some key differences.

• Manufactured homes are designed to be portable. They’re built on a chassis, or a metal frame with wheels. The chassis cannot be removed, but you can remove or cover up the wheels.

• Modular homes aren’t built on a chassis. They’re transported in pieces, but once they’re assembled, they’re placed on a permanent foundation.

When the completed modules leave the factory, they have up to 90% of what you’d need in a finished home. That includes floor, walls and ceiling; plumbing, electrical and HVAC; siding and shutters; even light fixtures and cabinets.

The completed modules are shipped to your building site, where they’re attached to the permanent foundation and each other. Then, the finished home is inspected to make sure it meets (or exceeds) local codes.

Nerdy tip: Generally speaking, modular home shipping costs are calculated by the distance the load has to travel. Expect to pay more the farther you are from the factory. Do your research and get cost estimates when you compare builders.

Whether you choose a modular or a site-built home, you’re still responsible for many of the same decisions.

First, that means finding and buying land. This is typically a separate cost from the price of your home, so budget accordingly.

Once you have land, you’ll still need to secure inspections, permits and utility hookups. Some (but not all) modular builders will roll these into the cost of your home. If not, prepare to pay for them out of pocket — and to handle all the logistics.

Most importantly: Do your research before you pick a builder. Visit home shows or open houses, ask questions and get references.

Site-built construction is still the most popular way to build a new house. In 2021, 98% of all new single-family homes were constructed using traditional methods, according to the Census Bureau.

Whether you decide on modular or site-built construction, it matters most to work with a reputable builder you can trust.

• Affordable: Factory construction drives down the cost of materials and labor, compared to site-built homes.

• Faster move-in: Indoor construction eliminates most weather delays. And while the modules are being built indoors, a crew can simultaneously prep the building site and pour the foundation.

• Durable: After Hurricane Andrew, the Federal Emergency Management Agency found that module-to-module construction held up better than other home types.

• Less construction waste:  Less waste at the building site means you’ll save on waste disposal costs, too.

• Energy efficiency: Super-tight seals and seams keep drafts out — and your heating and cooling bills low.

• Transportation cost: Rising gas prices can impact transportation costs. So can supply chain issues, such as availability of specialized equipment and skilled drivers. Extra large modules that meet criteria for an “oversized load” might cost more to transport, too.

• Logistics: Some states require an escort or pilot vehicle to accompany oversized loads in transit. It’s not easy to drive a giant trailer under low overpasses and power lines. Tight turns, narrow bridges, steep hills or muddy roads can all make transportation more difficult, too.

• Upfront payment: Depending on the arrangement with your builder, you might have to pay for the home in full before construction begins.

Once construction is complete on a modular home, it can be financed with a traditional mortgage just like an existing home.

But how do you pay for a modular home while it’s being built? Builders often require upfront or installment payments before you move in. Of course, if you can pay cash, that eliminates interest (and a load of paperwork, too). Otherwise, a construction loan might be your best option, much like if you chose a site-built home.

A construction loan is a short-term loan that provides cash flow while your modular home is being built. When construction is complete, you can convert or refinance the loan into a standard mortgage.

However, it can be more difficult to qualify for a construction loan compared to a regular mortgage because you don’t yet have a completed house to serve as collateral. Expect your lender to do an in-depth check of your builder and architectural plans, as well as your finances.

It pays to shop around for a construction loan, just as you would for a traditional mortgage. You’ll qualify for the best rates if you have a high credit score and low debt-to-income ratio.