| Financing construction of a modular home is
essentially the same as it is for building a new house on-site,
says Tom Talarico, senior vice president of the system-built
homes division at Waterfield Financial Corp. in Fort Wayne, Ind.
While consumers who buy an existing home just apply for a
mortgage, in many cases a buyer who is building a house needs
a construction loan first. That loan provides the funds for
the builder to purchase the materials and hire the labor to
build the house. Each withdrawal from the loan account is
called a draw.
It's a short-term loan, generally in the range of several months
that operates somewhat like a home equity line in that you only
pay interest on the portion of the amount that's been drawn
out of the account. For example, if you have a $100,000 construction
loan and at the end of the first month, you were to only use
$20,000 of it, the loan payment would be calculated on the $20,000
until another draw is taken. After the house is finished, the
buyer can convert the loan to a traditional mortgage.
Like a construction loan for a site-built house, a consumer
building a modular house would need evidence of ownership
of the land, a purchase agreement with the builder and a
set of plans and specifications for the house, Talarico
says. The primary difference between construction loans
for site-built and modular houses is the length of the term
and the number of draws. On a modular house, the lender
also will need to understand that the manufacturer will
want to be paid before delivery.
While the duration of a construction loan for a site-built
house might be from six to 12 months, a loan for a modular
house generally runs three to four months, he says. That
should translate into paying less interest.
Plus, a modular house usually has no more than four draws.
"In site-built, it can be a lot more than that,"
he says.
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