Whether banks provide home loans or finance for modular or relocatable homes 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 do home loans for relocatable homes! Each lender has different rules, and everyone’s situation is different. Our experience is that most lenders will provide finance on a relocatable home just the same as any conventional home.
So, read on to find out more about getting finance on relocatable homes.
WHAT SORT OF OFFSITE HOME ARE YOU WANTING TO FINANCE?
So, you would prefer to build a modular home and are now wanting to find out if you can get finance. You firstly need to identify the ‘type’ of the offsite building you are doing.
You will find that there is a vast range of different terms and types of building for offsite construction. From prefabricated, manufactured, relocatable, transportable, kit homes, pods, tiny houses the list just goes on.
BUT WHAT IS THE DIFFERENCE?
There are several terms commonly used to describe relocatable or kit homes. You will find that each building company will label their own style of modular home building differently. This is generally based on their marketing and preferences. Check out our post on the differences between offsite and onsite construction here.
After studying the market, we have found that all these terms actually fall into two main categories of building:
MODULAR HOMES (ALSO KNOWN AS TRANSPORTABLE, MODULAR, MANUFACTURED AND PREFABRICATED)
The main feature with this type of home is that at least 80% of the building work is completed in a factory. The new modular home is then transported in several sections to your site almost fully completed. It is then permanently installed on the site and finished as a regular onsite build home.
The other important feature with 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 turnkey package the same as any other conventional builder.
Modular homes, once established on site, are considered to be a permanent fixture just like an onsite built conventional home. The only difference from an onsite built home is that 80% of the building work was done in a factory.
KIT HOMES (SOMETIMES KNOWN AS SHED HOMES, FLAT PACK HOMES, ETC.)
The critical difference between a kit home and relocatable home is that the kit home is supplied in a flat pack and is delivered to site ready for the owner to assemble.
With a kit home, the owner will be required to obtain an owner builders certificate and then organise the assembling and erection of the house on their site. The owner is entirely responsible for the home during construction. There are minimal warranties or protections available during this time.
If you are looking to build a kit style home, you can expect that, unless you have other assets you can leverage, it will be close to impossible to obtain a bank loan.
Don't get us wrong - there really isn't anything wrong with a kit style 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 THIS GOT TO DO WITH BANK FINANCE?
Understanding what type of construction your new modular home will be is critical. If you're building a kit home, then you are going to find it challenging to get a bank loan.
But if you're going the modular way – the possibilities are endless!
BANK SECURITY FOR MODULAR HOMES
For a bank to loan money to you, they need some form of security for the Loan while the home is under construction. In the case of a conventional home, this is usually a mortgage on the land plus the portion of the house that has been constructed to date.
With offsite building, the bank ONLY has your land as security during construction. As the central portion of the home is not built on different premises to the mortgaged block of land. This means that the bank has no mortgage, and therefore no security, on the home while under construction.
In the case of the modular building method, 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 RELOCATABLE HOME FINANCED?
To overcome the issue as to a lack of security, most modular builders negotiate with the bank to amend the standard payment terms.
From experience, we recommend that you approach your bank or credit union as early as possible in the building process and indicate your proposal and how much you are needing to loan. Depending on your equity and overall situation, the financial institution will advise how they can assist you.
It is essential to understand that Westbuilt will negotiate with your bank to provide suitable payment terms that overcome the security issue.
HOW DOES BANK FINANCE AFFECT THE MODULAR BUILDING PROCESS?
The effect of bank finance to the overall building process by getting a bank to finance your new home is limited. The main results are:
Yes, banks are large institutions, and they do move slowly. One of the main effects of bank finance is that it does slow down the building process.
We find that most 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. This surcharge, which is usually about 1% of the value of your home, will cover the cost of Westbuilt providing debtor finance for the home while in the factory.
So, we hope you’ve found this article helpful. If you do have any questions about whether you can get bank finance, please don’t hesitate to contact one of our team to discuss your particular situation.