How to get a loan for a modular home in Australia

Love 'em or hate 'em, modular homes are taking over. Well, maybe not taking over, but it sounded cool. They're definitely popular enough for us to talk about how you go about paying for one.

What is a modular home?

You know when you buy a piece of furniture from somewhere that isn't Ikea, it actually arrives already built and ready for use? A modular home is like that.

It's a 'prefabricated building' (try saying that 10x fast), or pre-made. Sections of the home (modules, if you will) are built in a factory or warehouse and these sections are moved to the block of land that you own. Yes, you need to own the land you're putting a house on.

There are varying sizes of modular homes. Ranging from 1- or 2-bedroom properties, to big, beautiful mansions and even hotels and community buildings.

Building a modular home instead of a typically-constructed home not only saves on construction costs, but it is also much faster.

Do banks lend for modular homes?

Yes, you may be able to get a construction loan to cover the cost of building your modular home, but it can be more difficult.

The problem with getting finance for modular homes is that they're not built on site. While the property isn't on the land, the lender can't use it as security and that's a risk for them.

It is possible to get finance, though. You'll just need to do your research and talk to lenders early on in the process. Some lenders have strict criteria on the types of homes they'll lend for. (For example, did you know it can be harder to get loans for really small apartments?)

What kind of finance would I need for a modular home?

The first thing you might need to get finance for is the land you'll be building your house on. You can then get a construction loan for building the property.

You can do that separately or you might be able to get a house and land package. This is where you take out a bundled loan to purchase the land and then pay for the construction.

Either way, construction finance works in a really specific way where the bank gives you the money bit by bit as the construction progresses. But prefabrication homes are built in a different way where that doesn't really work.

So how does financing work for modular homes?

As we said above, building a modular home doesn't fit with a typical construction loan payment schedule. Anchor Homes lists the standard schedule for a modular home as below:

5% - Contract and building permit

20% - Frame stage

25% - Lock-up stage

40% - Fixing stage

10% - Delivery, installation and site fit-off

What other financing options are there for modular homes?

It might be worth speaking to a mortgage or commercial broker about finding finance for your modular home.

You could be able to finance your modular home by borrowing against any existing properties you have. This is a risk in that the bank will use this as security and if anything goes wrong they could take the property.

Depending on how much money you have, you may also be able to take out a personal loan to pay off the rest of the property. You will be paying much higher interest rates though.

How much do modular homes cost in Australia?

There are a few factors to consider when it comes to how much a modular home costs:

• The size of the home
• Distance between build site of the home and destination
• Material and customisations
• Floor plan

HiPages estimates modular homes cost between $2,500 and $3,000 per square metre. In general it can start from $114,000 for an 85sqm 2-bedroom home with 1 bathroom. That's for your basic, run-of-the-mill home before you choose your customised upgrades to things like the inside materials, insulation or other features.

There are several Australian companies which supply modular homes, like Ecoliv Buildings. The homes start from $228,000 for 1- or 2-bedroom homes, but it also has more luxurious offerings from $656,000.

That's also before you actually move the home to your location.

The cost of transporting the home is usually around $1,000 per truck, per hour. As you can imagine, the number of trucks depends on the size of the house.

Tips for helping the modular home financing process run more smoothly

1. Speak to lenders early on in the process. As soon as you decide you want to build a modular home, start talking to lenders about whether they'll offer you finance. It will work in a different way to how they supply construction finance so talk to them about that.
2. Work with modular building suppliers. There are several companies in Australia that build modular homes. Engage in them early on to understand the process, so that you can have more helpful conversations with lenders. The companies may even know which lenders have experience with modular homes!
3. Get pre-approval. Once you know which lenders are willing to lend for modular homes and you have your estimates for the house from the supplier, it's important to get pre-approval.

Companies offering modular home building:

Frequently Asked Questions

• What are my options if I have bad credit?

  If you want to build a modular home but you have bad credit, it may be harder to get finance. But standard home loans and construction loans have options available for borrowers with bad credit, so speak to those lenders upfront to see if they cater for modular homes. It may be harder though as modular homes can't be used as security until they're on the land, which increases the risk to the lender.

  Alternatively, you may need to save up a much larger deposit and only rely on a smaller amount of finance. If you're ever in doubt, speak to a mortgage broker.

• Can I buy a modular home for my first home?

  You may need a higher deposit to counter the risk to the lender, but otherwise you should be able to get a modular home as your first property. First home buyers often buy with a home and land package, so it would just be a case of confirming with lenders whether they would be ok offering this for a modular home.

 

Written by

Rebecca Pike

Senior writer

Rebecca Pike is Finder's senior writer for money. She joined Finder after almost four years writing for business publications in the mortgage and finance industry, including three years as editor of Mortgage Professional Australia. She regularly appears as a money expert on programs like Sunrise and Today, as well as across radio and newspapers. She also holds ASIC-recognised certifications in Tier 1 Generic Knowledge and Tier 2 General Advice Deposit Products. See full bio

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Rebecca has written 197 Finder guides across topics including:

• Home loans
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