Financial Information

Modular home construction incorporates standardized craftsmanship, assembly line efficiency and economies of scale to save time and money while delivering more consistent quality. All of these reasons make pre-fabrication a popular method for building structures. If you are thinking about modular home construction remember it isn't free and there can be some costs that you might not be expecting since you are likely inexperienced with home construction.

The good news is that factory-built housing allows for the general contractor to complete the construction phase much faster than would normally be possible. Instead of hiring numerous workers to bring in hammers, nails and 2x4's, the large modular pieces arrive pre-assembled. This allows for the building process to be completed much faster, but can also lead to some costs you migth not think about. These expenses aren't bad unless you forget to budget for it. Here are a few of the costs that might arise with modular home construction that yuou probably aren't thinking about.

Financing Process for Modular Homes

Modular home construction enables you to hire a professional to create your dream home. With modular home construction, you may be dealing with at least three different parties: 1. Dealer, 2. General Contractor and 3. Bank. Each has it own rules for how you are to pay for their services.

Modular home construction will involve both a "construction loan" for a short period of time (usually under 24 months time) and a "mortgage" (for 15 to 30 years.) Each separate loan might have its won type of origination fees, insurance charges and closing costs. Here are four primary problems with modular home construction that could lead to higher expenses.

1. Transportation of Pre Fab Home Segments

We save alot of time and money by building the homes in a factory by those savings are diminished a little since we do have to pay for those pre fab home segements to be transported to your permanent foundation. The modular factory may require you to make a down-payment to pay for the transportation of the materials from the factory to your home construction site.

This isn't a simple process. They will need to look at a map of your neighborhood to find the best path. Access to your home could be an issue if there are numerous trees, electrical power lines or height-restricted railroad tunnels. The large trucks, required to carry these modular pieces, can only operate on certain roads.

2. Transportation Insurance

During site preparation for modular home construction, space will be cleared for the large trucks and assembly cranes. It is possible that large tree branches might need to be trimmed. During transport an accident can happen. A car could hit the truck carrying your pre-fab pieces. Luckilly it is very unlikely a car will hit the transports. To be safe you may need to purchase transportation insurance to protect against this risk. Short-term construction loans will be used to pay the dealer.

3. General Contractor Assembly

Once the home is delivered and set on your building lot, it is not 100% finished. There is usually 10% to 20% of work that is still needed. The general contractor will need to pay for material and labor to put the finishing touches on your home. Unexpected costs with respect to the general contractor may include building site problems or extra local inspections. Short-term construction loans are used to pay the general contractor. The more customized your home, typically the more finishing work and costs.

4. Change in Home Market Value

Once the inspectors state the home is safe for occupation, the primary construction phase is over. Landscapers might add some finishing touches, but the overall structure is reliable. The home owner will pay off the general contractor using construction loan funds. The next financing phase will begin.

Before converting your construction loan into a mortgage, the bank will make an appraisal of the market value of your home. You could face unexpected costs if the real estate market has soured during construction. For the sake of risk management, each bank will have its own loan-to-value (LTV) ratio. This is basically what percentage of the total value of the property, the bank will lend you. To calculate your down payment - basically subtract the LTV from 100% - an LTV of 80% means your down payment is 20% of the loan.

Modular home construction offers many advantages, but you need to be smart and understand the construction process because building any new home is an expensive undertaking and can involve some unexpected costs. Plan ahead by creating a "rainy day fund" for the unexpected and thoroughly planning the process to avoid expensive suprises. Your "rainy day fund" ensures you have a "home sweet home."