Whether banks provide home loans for the purchase of offsite constructed homes (AKA modular homes) or not is a much-discussed topic! Financing your lovely new home is very important, and finding the right lender for you is critical.
The short answer to the question is, yes, banks can offer finance for modular homes. Each lender has different rules, and everyone’s situation is different. Our experience is that most lenders will provide finance, just the same as any conventionally built home.
Read on to find out more about getting finance for a modular house.
WHAT TYPE OF OFFSITE HOME ARE YOU WANTING TO FINANCE?
So, you would like to build a modular home and are now wanting to find out if you can get finance. You first need to identify what type of offsite house you are going to purchase.
You will find that there are a range of different terms applied in relation to off-site construction. This includes prefabricated, manufactured, relocatable, transportable, kit, flat pack, and modular... the list can go on.
BUT WHAT ARE THE DIFFERENCES BETWEEN THESE TYPES OF HOMES?
You will find that individual building companies will label their type of off-site homes differently. This is generally based on their marketing preferences.
After studying the market, we have found that all these terms actually fall into two main categories of construction.
1. MODULAR HOMES (ALSO KNOWN AS TRANSPORTABLE, MANUFACTURED, RELOCATABLE OR PREFABRICATED)
The main feature of a modular home is that at least 80% of the building work is completed in a factory. The modules that make up the home are then transported in several sections to your site, almost fully completed. The home is then permanently installed on your site and then connected to utilities.
The other important feature of a modular home is that the modular home builder will typically take full responsibility for the home from start to finish. Some builders, like ourselves, will even offer a full turnkey package, the same as any other conventional on-site builder.
Modular homes, once established on site, are considered to be a permanent fixture just like an on-site constructed home. The only difference compared to an on-site home is that the majority of the construction is done back at the factory.
2. KIT HOMES (SOMETIMES KNOWN AS FLAT PACK HOMES)
The critical difference between a kit home and a modular home is that all the components that make up the home are supplied as a flat pack, delivered to site ready for the owner to assemble themselves.
With a kit home, the owner will be required to obtain an Owner Builder Permit and then organise the assembly of the home and connecting it to utilities. The owner is entirely responsible for the home during construction. There are minimal warranties protecting the owner.
If you are looking to build a kit home, you can expect that, unless you have other assets you can leverage, it will be quite difficult to obtain a bank loan.
Don't get us wrong - there really isn't anything wrong with a kit home. We find that the clients that choose to go this way have the time and expertise to complete the house how and when they want to.
SO, WHAT'S ALL THIS GOT TO DO WITH BANK FINANCE?
Understanding what type of construction your new off-site home will be is critical. As we mentioned above, if you're building a kit home, then you are going to find it challenging to get a bank loan.
For a bank to loan money to you to build a home, they need some form of security for the loan while the home is under construction. In the case of a conventionally built home, this is usually a mortgage on the land plus the portion of the house that has been constructed to date.
The major problem encountered by people who want to buy a kit home is that most lenders don’t offer owner-builder loans or will ask for you to pay for the purchase of the kit materials up front using your own funds. Banks will want borrowers to own 100% of the land they are building their kit home on as a form of security.
With modular homes, the bank only has your land as security during construction. The central portion of the home is built on a different premises to the mortgaged block of land (the factory). This means that the bank has no mortgage, and therefore no security on the home while it is under construction. We find that most banks will not release progress payments until the home is permanently fixed onsite or until the final completion of the project.
SO, HOW DO I GET MY MODULAR HOME FINANCED?
To overcome the issue as to a lack of security, most modular home builders negotiate with banks to amend the standard payment terms.
From experience, we recommend that you approach your bank or credit union as early as possible in your decision making process and indicate your intention to buy a modular home and how much you are needing to loan. Depending on your equity and overall financial situation, your bank will advise how they can assist you.
It is essential that you communicate to your bank that Westbuilt is willing to negotiate to provide suitable payment terms that overcome the security issue.
HOW DOES BANK FINANCE AFFECT THE MODULAR BUILDING PROCESS?
The impact of securing bank finance on the overall build process is limited. The main factors to keep in mind are:
SLOWER TIMEFRAME
Yes, banks are large institutions, and they do move slowly. One of the main factors of securing bank finance is that it does slow down the overall modular build process somewhat in comparison to an on-site built home.
We find that most modular home loan applications take 4-6 weeks to approve. There will generally be another 1-2 weeks added at the end of the process while you wait for the bank to complete the valuation.
BANK FINANCE SURCHARGE
To allow us to negotiate with the banks and modify the payment terms, we do have to include a bank finance surcharge with the price of your home, which is usually about 1.5% of the value of your home. This is to cover the cost of Westbuilt providing debtor finance for the home while it is still in the factory.
READY TO START THE JOURNEY OF BUYING YOUR DREAM MODULAR HOME?
If you think that building a modular house is the best option for your next home, talk to the team at Westbuilt. We have been designing and building stunning modular homes since 1993 and have helped countless people become happy homeowners over the years.
To learn more about our modular design and construction processes, click here to book a no obligation consultation with one of our modular experts. We’d be happy to answer any questions you may have.
