Buying a Modular Home: Costs, Financing and Spotting One

By HomeSmitten Team ·

How Much of a Down Payment Do I Need for a Modular Home?

The quick answer

A modular home is built in factory sections to the same state and local building codes as a site-built house, so lenders usually treat it like one. Expect a mortgage or construction loan, not a chattel loan. FHA loans allow down payments as low as 3.5 percent, but a construction loan often asks for much more. Price the home, delivery, crane set, foundation, land and utilities as separate lines. You can tell a home is modular from its data plate, usually found under the kitchen sink.

Most of the money mistakes with modular homes come from one confusion: the factory price is not the finished price. The home itself is only one line. The land, foundation, septic or sewer, utility hookups, delivery and crane are others, and each is paid or financed differently. The second confusion is the word itself. Modular and manufactured homes are not the same thing, and the rules for each are different.

This guide covers five questions buyers ask: how much to put down, what you can negotiate, whether you can build on family land, how additions work, and how to tell if a house is modular. Where a number would help, we've left it out unless a source gave it with a clear scope. Ask your own lender and builder for current figures.

Modular vs. Manufactured: Settle This First

A modular home is built in one or more sections in a factory, then trucked to the lot and set on a permanent foundation. It is designed to meet the state or national building codes of the place where it will stand, according to the National Association of Home Builders (NAHB) Modular Home Builders Council. In Maryland's words, modular homes are built to state standards, and those standards pre-empt local building codes for the factory work.

A manufactured home is a different product. It is built on a permanent steel chassis to the federal HUD Code, and it carries a red HUD label on the outside of each section. Maryland's labor department states the split plainly: the HUD Code applies to manufactured homes, state standards apply to modular ones. A modular home may be built with or without a chassis, but a chassis does not make it a HUD-code home.

Why it matters for money: a modular home is placed like a site-built house, so lenders and appraisers deal with it that way. An older HUD reference page says modular construction is a factory-built home that is treated the same as stick-built housing for FHA purposes. Manufactured homes have their own FHA rules, including the federal label and a permanent foundation built to FHA criteria. Everything below is about modular homes.

Down Payment and Financing

There are two ways to pay for a modular home, and the down payment differs between them.

  • A regular mortgage on a finished home you buy complete, with land. Because a modular home is treated like a site-built one, the usual programs apply. The Consumer Financial Protection Bureau says FHA loans allow a down payment as low as 3.5 percent, and that mortgage insurance is required on all FHA loans. Fannie Mae's guide says it buys loans on modular homes built under the International Residential Code as administered by the state where the home is installed, and that it sets no minimum width, size or roof pitch.
  • A construction-to-permanent loan when you are buying the home and having it set on your lot. The lender releases money in installments (draws) as work is finished, you pay interest only on what has been drawn, and the loan converts to a standard mortgage after final inspections. Experian says you will usually need to put down at least 20 percent of the total project cost, and up to 30 percent depending on your credit. Lenders differ, so treat that as one published range, not a rule.

The total project cost in that range includes the land, site work and foundation, not just the home. Ask your lender to list each as its own line, and ask whether it counts land you already own toward the down payment (see the family land section below). We couldn't confirm VA or USDA rules for modular homes from the agencies' own pages, so ask a lender that handles those loans.

Before you commit, get a pre-approval and confirm which loan type the lender will use. Some lenders won't write a construction loan on a modular build at all.

Are Modular Home Prices Negotiable?

Sometimes, but the room is smaller than on a used house, and it sits in a different place. Start by finding out what the quote covers. BuildingAdvisor's article on prefab pricing (December 2014) warns that a factory quote is often for the assembled components only, with site work and delivery left out. Its advice is to ask exactly what is included and to compare bids line by line, checking that each bid includes and excludes the same items.

How to get the best deal on a modular home

Items to ask about, one by one:

  • Home-only or turnkey. One builder publishes both: a home-only price that excludes delivery and setting, and a turnkey tier that adds estimates for setting, foundation, septic or well, and hookups. Know which one you were quoted.
  • Options and upgrades. These are priced at the factory and are usually where a dealer or builder has the most flexibility.
  • Delivery and set crew. Distance and lot access change both. Ask whether crane time is included.
  • Site costs. Excavation, driveway, clearing, well and septic depend on your lot, so no dealer can fix them without seeing it.
  • Contract type. BuildingAdvisor suggests fixed prices and avoiding open-ended cost-plus contracts.

The same source says lenders often add a 5 to 10 percent contingency for overruns. We haven't quoted savings percentages or prices because the published ones were old or came from one builder. Get at least two line-by-line quotes for the same plan and compare the totals.

Can I Put a Modular Home on My Parents' Property?

Often yes, but three local gates decide it: zoning, subdividing, and water and sewer. None of them is set nationally.

  • Zoning. Your county or town zoning office tells you whether a second house is allowed on the parcel, the minimum lot size, and the setbacks. Modular homes are built to site-built codes, so they are generally allowed where site-built houses are. Confirm that locally.
  • Subdividing or a family lot. If you need your own lot, some counties have a family subdivision process. Where one exists, it usually limits who qualifies and may require the lot to stay in the family for a set time. We could not verify a general rule, so ask the planning office before you buy a home plan.
  • Septic, well and utilities. The EPA says a septic permit is issued by your local permitting authority, usually the local health or environmental department, which also does the soil assessment. If the soil can't treat wastewater, the project may stall, so start that step early.

On the money side, lenders can count equity in land you own toward a construction loan's down payment. Arbor Financial gives an example: a paid-off $50,000 lot plus a $300,000 house is a $350,000 project, and the land is a little more than 14 percent of it. That is one credit union's example, subject to appraisal, so treat it as a question to ask. If the land belongs to your parents and is not in your name, a lender will not count it unless the title or a lot transfer changes. Talk to a lawyer about how the land will be owned before you sign for a loan.

Modular Home Addition Ideas

A modular addition is a room or set of rooms built in a factory and craned onto a prepared foundation next to your house. It can suit a bedroom suite, a family room or an in-law wing, and the home it attaches to does not have to be modular.

Modular home extension

What the process involves:

  • Foundation first. The foundation has to be built to local code, cured and level before the module arrives. An engineering explainer on site connections says any misalignment will stop the sections from joining correctly, and that water, sewer and electric lines are brought to the foundation beforehand.
  • Access for the crane. In our judgment, the crane and the delivery truck need clear room, so overhead power lines, trees, fences and a narrow driveway are worth raising with the set crew before you order.
  • Permit and inspections. Your local building department decides what is needed. County pages for modular homes list inspections such as footing, foundation, marriage wall, electrical and a final inspection. An addition will follow the same local process.
  • Tie-in to the existing house. The opening in the existing wall, the roofline and the utilities all have to be planned together. Ask the manufacturer for engineered connection details for your house, and have a structural engineer look at the existing framing.
  • Second-story additions. Wikipedia says modular rooms can weigh 30 percent or more than the same room built on site, so the existing structure should be sound. That is a general claim from a source that needs more citations, so ask your engineer.
Prefab additions to modular home

Don't assume a modular addition is cheaper than a stick-built one. The same Wikipedia page says it rarely is when compared by square footage, though you get a shorter time on site. Get a quote for both and compare what each includes.

How to Identify a Modular Home

Three kinds of evidence settle it: the data plate, the labels, and the paperwork.

  • Data plate. Every factory-built home has one, according to the North Carolina Department of Insurance. It is usually a laminated paper about 8.5 by 11 inches, glued inside the home. North Carolina's memo lists the kitchen cabinets first, especially under the sink, then a bedroom closet wall, and, less often now, the electrical panel box. Plates are sometimes painted over or removed during renovations.
  • Reading the plate. A plate that mentions HUD, or shows three U.S. maps for wind, roof and thermal zones, is a manufactured home. A plate with a state modular label number, a third-party modular label, the word "modular," or a reference to the state building code is a modular home.
  • Labels. A manufactured home has a red HUD label on the outside of each section. In Maryland, a modular home shows green state labels inside, generally inside the cabinets under the kitchen sink. Other states use their own labels.
  • Records. Modular homes are approved by a state program, so the state or local building department may hold a record. North Carolina has collected data plate copies on modular homes made since August 2010 and can supply a replacement. Ask your own state's factory-built housing office.
  • The seam. Modules join at a marriage line, but crews tape, seal and finish the seam, so it is often hard to see. In our judgment, look in a basement or crawl space for a beam line down the middle, and in the attic for a ridge or joint where the roof sections meet.

Treat the seam as a hint only. If you can't find a plate, the county permit file for the foundation and set is the better check than the framing.

Who to Ask

  • The manufacturer for plans, the data plate record and engineered details for changes or additions.
  • The dealer or builder for a written, line-by-line quote that states what is and isn't included.
  • Your local building and zoning departments for permits, setbacks, family lot rules and inspections.
  • The county health department for septic and well approval.
  • A lender who has written modular loans for loan type, down payment and land equity.
  • A structural engineer for anything that ties into an existing house.

Frequently Asked Questions

Is a modular home the same as a manufactured home?

No. A modular home is built in sections to state and local building codes and set on a permanent foundation. A manufactured home is built on a permanent chassis to the federal HUD Code.

What is the minimum down payment for a modular home?

It depends on the loan. The CFPB says FHA loans allow as little as 3.5 percent down. Experian says construction-to-permanent loans usually ask for at least 20 percent of the project cost. Lenders set their own terms, so ask for quotes.

Does a modular home price include the foundation and land?

Often not. Factory quotes can cover only the assembled home, with delivery, crane set, foundation, site work and utilities billed separately. Ask whether the price is home-only or turnkey, and get each item in writing.

Can I use land I own as a down payment?

Some lenders accept paid-off land equity toward a construction loan's down payment, subject to appraisal. Confirm with your lender, and note that the land has to be in your name.

How can I tell if a house is modular?

Find the data plate, usually under the kitchen sink or in a bedroom closet. A state modular label number or the word modular means modular. A HUD label or HUD wording means manufactured.

Sources