Financing a Modular Home Purchase The Basics
So you’re interested in purchasing a modular home, and need to more about how you will finance the project. Financing a modular home is the same in the end as financing a house constructed on site, but different in the middle. Let’s explain. Traditional Construction Traditional construction financing is based on a bank’s ability to secure value in your property through a construction mortgage. For example, If your land is worth $250,000 the bank will start by lending you a portion of that value, then as you proceed through construction and add value to the land at stages such as foundation completion, lockup and occupancy, the bank will send it appraiser to the property and will give you more money against that value. Modular Construction The slight difference with modular construction is where the house is built. In the modular scenario, the home is being built offsite at a factory, thus a mortgage lender does not view its construction as adding value to your land.
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While the bank is still likely to advance funds against a portion of your land’s value, they are unlikely to advance funds against those improvements since they are sitting offsite and they cannot securitize against them in the same way that they could if the home was built on site. This means that the offsite portion of your build needs to be financed through alternative means while it’s being built in the factory. Once the house arrives at site, banks are happy to lend against that value in the same way as if it was built there in the first place. How to Finance the Offsite A conventional construction loan often does not work for a modular project due to the expedited time frame for a modular build, as well as the fact that the house (aka the modules) are manufactured offsite; not directly on your property at first. A good option for modular financing is a combination loan with a Line of Credit and a Mortgage.
In this scenario, the Line of Credit is secured against the modules, your land and possibly other assets. This money is used to finance the factory construction. Once the modules are transported to site and installed on the foundation the Line of Credit converts to your pre-approved permanent mortgage, sometimes referred to as a Completion, or Take Out mortgage. For more information contact Ecofab.ca or call 604 989-8184
