What is a modular home?

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Sometimes, dream homes can become a reality much faster than you think. Modular homes allow you to construct a home on a plot of land, often faster, cheaper and of equal or better quality than traditional stick-built homes. Here’s everything you need to know about this unique type of home.

What is a modular home?

Modular homes, sometimes referred to as prefab homes, are factory-built homes, made off-site in large factories, then put together at the building site. The styles and layouts of modular homes can be as varied as your imagination, with soaring ceilings, window walls and more, and can be ordered from standard plans or custom-made to your specifications. The elements of a modular home are trucked to the site in large sections and then assembled with cranes.

Modular homes aren’t the same as mobile homes, which can move from one location to another. A modular home is a permanent structure and can’t be moved after being secured to its foundation.

Are modular homes popular now?

Modular housing is more popular now because traditional home-building and upgrades are expensive, according to Gordon Stott, co-founder of Connect Homes in Los Angeles.

“The modern prefab movement started about 15 years ago, and it’s been gathering steam,” Stott says. “People are looking for innovative ways to build homes for less money and less headache.”

Stott says modular homes have been around in one form or another for many decades. While more popular in countries like Japan and parts of Europe, they’re starting to gain momentum in the U.S.

How much does a modular home cost? 

Modular homes can vary widely in size and scope, so the cost of the home varies with many factors, including the building material used and how you customize the design. Here’s what you might expect to spend, according to HomeAdvisor estimates:

  • Foundation – The foundation of a modular home with a basement can cost between $18,000 and $30,000. A foundation with a crawl space can cost somewhat less, between $8,000 and $21,000.
  • Utilities – The cost of utilities, connecting to the electrical grid and installing a well and septic system or hookups can be between $3,000 and $20,000.
  • The house itself – Base-model modular homes can range between $40 and $80 per square foot. At that rate, an 1,800-square-foot home will cost between $72,000 and $144,000. The all-in cost with installation is closer to $100 to $200 per square feet, or $180,000 to $360,000 for an 1,800-square-foot home.

How long do modular homes take to assemble?

While a modular home is generally faster to put together than a traditional home, the process does take time: typically anywhere from four to nine months. The exact timeline depends on the size of the home, how long it takes to get permits and whether you’re using a standard floor plan or have added customizations. Sometimes builders have a backlog of projects that can delay things, while others have capabilities that can expedite the build.

How does modular home financing work?

Like a home built on-site, you have a few different financing options for a modular home. One common route is a construction loan, which is a shorter-term loan that funds the cost of the land and project. Construction loans can be structured in several ways, but typically once the home is complete, the loan converts to a mortgage.

“[The] process isn’t much different from financing the construction of a typical home,” Stott says. “You get a construction loan, which can be rolled over into a fixed-rate mortgage.”

Construction loans can be obtained from a variety of mortgage lenders, including banks, credit unions and other institutions, and sometimes through the builder’s preferred lender partner.

Modular vs. manufactured homes

While a modular home is technically manufactured, it’s not the same as a manufactured home or mobile home. That’s because of how modular homes are built, explains Benjamin Ross, a real estate expert and investor in Texas.

“Manufactured homes have a distinct look because they are not built on a foundation,” Ross says. “Modular homes and traditional stick-built homes can be difficult to tell apart from each other.”

Manufactured and mobile homes are also built to a different set of codes than modular homes. Another key difference is where the home is allowed to be located.

“Modular homes are permanently attached to their foundations and once they are installed, they are effectively and legally no different from other site-built homes,” Stott says. “Manufactured homes can typically only go in areas where zoning allows — trailer parks or very rural areas.”

It also comes down to how they’re classified. Modular homes are real property, while manufactured or mobile homes are considered personal property, Stott says. Because of this, they’re typically taxed similar to vehicles, and depreciate in value, unlike modular homes.

Pros and cons of modular homes

Pros

  • Less time to build – Since modular homes are made in a factory, there is virtually no chance of weather-related setbacks.
  • Flexible and custom specifications – You can build your home exactly the way you want it, and there are few limits on size because while the elements have to fit on a truck, they are combinable at the site.
  • Reduced waste – Constructing a modular home is a green process, and reduces material waste, transportation impact, energy use and operational impact.

Cons

  • Customization limitations – While you have the chance to create a home to your liking, you might run into some limitations, depending on your vision.
  • Additional costs – While modular home financing works like buying a regular home, there are extra costs. Electrical, plumbing and ductwork aren’t part of the base modular home pricing, so you’ll have to pay to have this work done. You’ll also be buying the land, which adds to your costs.
  • Preconceived notions – A modular home might be harder to sell down the road, because some believe they aren’t as well-constructed or sturdy as traditional homes built on-site.

Who is a modular home right for?

There are different types of clients modular homes could work for, Stott says:

  • Empty-nesters looking to downsize
  • Couples looking for backyard units, like tiny homes
  • Families looking to upgrade a dated property in a nice but expensive neighborhood

Tips to find a modular home builder

  1. Find a lender. “Start with the lender,” Ross says. “You first need to know if you are approved and how much you are approved for. They will then direct you to various modular companies they have worked with in the past.”
  2. Do your research. Consider builders with experience in modular homes, and who can show you their track record or point you to testimonials or past projects. You can also vet the builder through the Better Business Bureau or based on other third-party reviews.
  3. Ask about price. After you’ve found a builder, ask what’s included and what isn’t included in the base price of the home. What do you need to pay for upfront and what do you need to pay at the end of the project? Be sure to get everything in writing, including what you were quoted.

Find other housing types:

House type Who it’s right for:
Apartment Apartments are suited for anyone looking to stay in a prime location for a cheaper price near shopping, restaurant and entertainment centers, often at a more affordable cost than buying a condo or single-family home.
Condominium Condos appeal to those looking for lower-maintenance living, a home with a sense of security and opportunities to be social with neighbors, among other factors.
Townhouse Townhouses are a particularly good option or first-time homebuyers or other budget-minded homebuyers who want more space than typically afforded in a condo.
Modular home Modular homes are enticing to empty-nesters looking to downsize, couples looking for backyard units like tiny homes or families looking to upgrade their dated properties in nice but expensive neighborhoods.
Single-family home Single-family homes are best for families who prefer a huge yard and plenty of room to spread out.
Multi-family home Multi-family homes are best for those who are interested in getting into real estate investing and are comfortable with the added responsibility and time commitment that comes with being a landlord.
Bungalow home At between 1,000 and 2,000 square feet, bungalows are a great option for young families looking for a starter home or retirees hoping to downsize in a home without stairs, or single homeowners who want the single-family home lifestyle without managing a huge property.
Patio home Typically capped at one-and-a-half stories and part of a larger association, patio homes are best for homeowners who don’t want to deal with stairs or maintenance.
Ranch home Ranch homes are ideal for anyone who prefers single-story living. Singles, couples and families with children can find something to love about a ranch home.
Written by
Dori Zinn
Contributing writer
Dori Zinn has been a personal finance journalist for more than a decade. Aside from her work for Bankrate, her bylines have appeared on CNET, Yahoo Finance, MSN Money, Wirecutter, Quartz, Inc. and more. She loves helping people learn about money, specializing in topics like investing, real estate, borrowing money and financial literacy.
Edited by
Mortgage editor