A construction loan for a true modular home built to local and state building codes will offer the same interest rate compared to traditional construction loans. There is no difference in the rate or term of the loan, they are the same. So, you may be asking yourself, what is a true modular home? A true modular home or sometimes referred to a system built home is a custom built home, built in a factory out of the weather compared to a stick-built home constructed on site.
The modular units when completed are delivered to site and assembled in a matter of days. When the work is completed the total balance of your line of credit will be converted to a standard residential mortgage. You may also find a lender of construction loans for Modular Homes who will agree to include the amount of interest you pay during the construction and cover any cost overruns. On average a modular home only takes 90-days to complete, which reduces interest costs dramatically, compared to a stick built home which can take 12-months or longer.
How Construction Loans for Modular Homes are Disbursed
Funds are distributed when certain work on your property has been completed. For example when the foundation is finished the bank will send someone to inspect the job site to verify the foundation is done. Once verified the bank will distribute funds to either the home owner or contractor. As certain property improvements are completed funds are distributed in a timely manner.
Most lenders will fund the cost of the modular home once it arrives at the home-owners property and is inspected. Funds are allocated to the builder or manufacturer and then the modular home builder will start attaching the home to the foundation. Once this work has been completed funds will be distributed for the installation of the home. If you need to ask for additional money above your original construction loan amount your lender may charge you additional fees.
When talking with a modular home builder, be sure to clarify when funds will be distributed. Many builders and manufacturers require payment once home has arrived to the job site. Some lenders will not fund at this stage of the game and only fund once the home is completely installed. This lending practice is looked down upon in the modular home industry and many builders will not accept this payment method.
Qualifying for Construction Loans for Modular Homes
Like traditional mortgages, construction loans for modular homes will require you to come up with a 10% to 20% down payment. The chances of this will be higher if you are requesting a very large loan, or don't own the lot on which your home will be constructed. The days of 100% financing are long gone since the economic melt-down in September.
With any construction loan you should establish a budget and stick with it. Be aware that the temptation to keep asking for extras as your modular home is being designed, can throw your entire budget for the project out of whack and make it more difficult for you to qualify for a construction loan.