New financing options for affordable and attractive factory-built homes


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Imagine building a brand-new car in your driveway. Every part would be hauled in to be assembled on-site by subcontractors. It might take several weeks of coordinated effort by a variety of experts to execute the final product. If the weather is bad or something is missing, then expect delays.

This kind of white-glove, car-building service would cost a lot more than a factory-built car delivered to you completed. And, in reality, the factory-built car is probably no less safe or well-built than the car made on-site. The idea of building custom cars in driveways seems absurd, yet this is how we traditionally build homes in the U.S.

As labor shortages and tariffs continue to drive up the cost of single-family home production and the lack of affordable housing makes headlines, some folks are turning to factory-built homes. Cheaper, faster to build and more environmentally progressive, modular and manufactured homes can make housing affordable for folks across the country. And now financing them is easier than ever before.

Here, we look at three types of popular factory-built homes: modular, container and manufactured homes.

What’s the difference between modular and manufactured housing?

These non-traditional homes fall under the category of prefabricated homes, simply known as “prefab.”

There are important differences within this category, but the terms are sometimes used interchangeably. Modular homes are made in a factory, assembled on-site in large sections and then affixed permanently to a concrete foundation. A container home is a type of modular home that is made from a steel shipping container and is permanently affixed to a foundation.

Manufactured homes are also factory-built, steel-framed homes but, unlike modular homes, they include a permanent chassis and axles so that wheels can be attached. Manufactured homes are also known as mobile homes and trailer homes.

These homes are also built to different codes. Manufactured homes must follow the U.S. Department of Housing and Urban Development, or HUD, code while modular homes follow the same building codes as stick-built homes, which are designated by their city, county or state.

Manufactured homes have gotten a bad rap because of their association with run-down trailer parks and media portrayals, says David Battany, EVP of capital markets at Guild Mortgage. But — like container homes and modular homes — their role in solving the affordable housing problem (while minimizing waste) shouldn’t be overlooked.

“A huge part of this is awareness,” Battany says. “If you took the average homebuyer, they don’t realize the high quality of manufactured homes. Even people in the mortgage industry are thinking of poor-quality construction on leased land. It’s totally different today. It’s very well constructed, the homes are made out of drywall. And people own the land in many cases. I used to work in construction. I could not tell the difference between a manufactured home and a stick-built home.”

Modular homes offer cost- and time-saving alternative

Along with being cost- and time-efficient and less wasteful, modular homes are also a big deal among design aficionados.

Despite the words “container” and “factory” (which sound more like descriptors for processed soup than living spaces) these homes often appear on the covers of magazines like Architectural Digest and are admired for their use of clean mid-century modern lines and utilitarian sensibility.

It’s this kind of coverage (and following) that drives business for modular home manufacturer Gordon Stott, founder of Connect Homes based in Los Angeles.

“We haven’t spent time marketing our homes. Ultimately, it’s people responding to what they saw in magazines or in person. Our first house made the cover of Dwell, so that helped,” Stott says. “It’s a design-centric community that knows about modular homes. They like the look of them and understand the benefits.”

Among those benefits is the ability to slash housing costs in high-priced areas like Silicon Valley. In August, the median price of a single-family home, per square foot, was $710 in Santa Clara County (home to San Jose), according to data from the California Association of Realtors. A Connect Homes modular home costs $280 per square foot, delivered and installed. The price includes all the foundation work, too. In 2017, the average price for land in Santa Clara County was $120 per square foot, according to the Federal Housing Finance Agency. This data is based on land under current existing structures; vacant land might be even cheaper because it hasn’t been developed.

In other words, a modular home and the land costs about $400 per square foot, significantly less than the median per-square-foot price of a stick-built, single-family home in that area.

Advantages in California market

Along with being affordable, modular homes require a fraction of the time stick-built homes take to finish. Because nearly all of the work is done in a factory, there are no weather delays, material issues or problems with subcontractors.

The homes are built to code and inspected by a third-party in the factory, then they’re inspected by a local building inspector once they’re on site. According to the National Association of Home Builders, prefab homes “often exceed all requirements of locally adopted building and fire codes.”

The build speed has made these homes popular among California wildfire victims, who face high construction costs and slow build times. Many of the homeowners want to rebuild, but there’s just not enough construction manpower, which means building costs can be exorbitant. On top of that, they’re facing a three- to five-year build time, which means they have to pay rent while they wait, Stott says.

“This summer, we delivered 16 houses in Sonoma. We have one Malibu house in the permitting stage, but we expect more to come. We can offer a very predictable price and timeline. Our houses are move-in ready in as few as nine months,” Stott says.

Part of the process includes putting a concrete foundation customized to your house and then attaching the steel frame to that. To make the process as smooth and quick as possible, homeowners can choose from a set of pre-designed and state-approved floor plans that range from 640 square feet to more than 3,200 square feet.

Container living in the Catskills

Less dire circumstances drew Stephen Murray to non-traditional housing, in the form of a shipping container. Looking for a respite from city life, Murray began a house hunt in the Catskills, a bucolic area in southeastern New York known for its rolling hills and placid lakes, straight out of a Thomas Cole painting.

What he found was weathered farmhouses, some over 100 years old, with low ceilings that required him to hunch his 6-foot-2-inch frame. On the other end of the spectrum were suburban homes he found unappealing.

When he saw his first Catskills container home, by designer Tim Steele in collaboration with architecture firm Big Prototype, he was struck by their silhouette against the landscape. But what sold him was how little waste they produced. The 9-foot ceilings didn’t hurt either.

“You’re upcycling so you’re using existing material,” Murray says. “It spoke to me in terms of eco-friendliness.”

Steele, a longtime designer of container homes and founder of Steele House, believes that the age of McMansions is over. He’s passionate about showing would-be homebuyers that there are affordable ways to achieve the American dream, while minimizing their impact on the environment.

“Along with the green aspect, they check a lot of other boxes, too,” Steele says. “They’re very strong — as strong as a brick home. We can also raise them off the ground, which is great if you live in a flood zone. Plus, when you see them there’s just something about them. They have a provenance that other homes just don’t have.”

Container homes are cost-efficient because the structure is already there. A used container might cost $2,500 while a new one is about $5,000, says architect and container enthusiast Mishou Sanchez. But Sanchez warns that building a container home can get expensive if you compromise the structure.

“You have to be smart when designing with containers,” she says. “Cutting into them too much defeats the purpose of building with them. Clever insulation is needed because it starts to limit the interior dimensions. People should get a feel for the size of an actual container before committing.”

A ‘viable solution’ to a growing problem

A long-standing argument against manufactured homes is that they lose their value, making them a poor bet for people who want to build equity. But an Urban Institute report shows that the opposite is true, as long as homeowners own the land their home is on. The home price index for manufactured homes (also known as mobile homes) featured an average annual growth rate of 3.4 percent, versus 3.8 percent for traditional, site-built homes, the study shows.

“In recent years, home prices have actually risen at a faster clip for manufactured, or mobile homes, than they have for traditional properties,” according to the report.

Manufactured housing is one viable solution for the affordable housing shortage, says Edward Golding, nonresident fellow in the Housing Finance Policy Center at the Urban Institute.

“We’re not going to solve affordable housing with one solution,” Golding says. “It might not work in downtown San Francisco, but in rural areas where wages are low and builders don’t want to build just a handful of houses, this is a great start. If we got 50,000 manufactured homes each year, over time that’s a couple million. You start with the numbers; it’s much more affordable for a number of reasons.”

How Fannie Mae is changing the game

A new mortgage option introduced by Fannie Mae earlier this year, MH Advantage, is helping to make it easier for homebuyers to finance manufactured homes. Guild Mortgage is one such lender that offers the loan program. The purpose is to “help ease the nation’s affordable housing shortage, address borrowers’ evolving needs and provide a growing business opportunity for lenders and the industry,” according to a statement on its website.

MH Advantage homes must meet certain requirements to be eligible for the loan program. These requirements are designed to make eligible homes fit in seamlessly with their stick-built counterparts in neighborhoods. MH Advantage requirements include:

  • The eaves must be 6 inches or greater.
  • Energy-efficient features, including Energy-Star approved products.
  • Drywall throughout the home.
  • Solid wood or veneer kitchen and bathroom cabinets.
  • The exterior siding must be fiber cement board, stucco, hardwood siding, masonry, stone or engineered wood siding.

The program is helpful because lenders can use comps of site-built homes, making it easier to qualify for a loan in a neighborhood of all or mostly site-built homes. The MH Advantage program allows borrowers to make a minimum 3 percent down payment, further easing the path to homeownership.

How to pay for your non-traditional home

Along with MH Advantage, there are other financing options available, but it might take some research and sitting down with a lender to find one that’s right for you. Some options include construction loans; these include construction-to-permanent loans and stand-alone construction loans.

Some folks might choose to use the equity in their home to build a second home. Murray took out a home equity loan on his New York City apartment to finance his Catskills dream home, for example.

Personal loans might be another option for some borrowers.

There are also government-insured loans for manufactured homes offered by the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA), and the Rural Housing Services (RHS) under the U.S. Department of Agriculture.

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