How Much of a Down Payment Do I Need for a Modular Home?

If you want a more affordable and modern home, consider a modular and customizable house. You are sure to receive the size you need on the budget you need, including even coverage for the down payment.

How much, on average, of a down payment do I need for a modular home?

Despite being affordable, a modular home does entail a lengthy process. You have to secure land for the house to sit on, a mortgage, and a contractor to build the home.

When borrowing money for your home, mortgage lenders do not include the price of the land or the contractor. Typically, you will have to make a down payment of 5% to 20% of the mortgage of just your modular home.

Many agencies are more flexible now, however, and lower down payments are more of the norm. These lenders allow some buyers to put down less than 5% if necessary and if you qualify.

If you purchase your modular home from a dealer, you will have to put in 10% with them. You will have to put down at least 20% of the land you want to purchase for your home as well.

What Exactly is a Modular Home?

You must understand what a modular home is, especially if you want to purchase one for your family. They are different from mobile homes and manufactured homes.

Experts manufacture modular homes at your property site that you bought, and they are made in a factory so that your customizations are present. Modular homes do have the most worth out of the three types of factory-built houses.

When considering the worth of modular homes, you should know that the valuation will grow. Likely, your house will still be up to code when you sell, as they maintain the housing codes required by the government.

Mobile homes are probably what you first imagine when you think of factory-built houses, but these are the most difficult to get a loan for. These housing options are typically the oldest, with the end year of manufacturing 1976, and they are no longer up to code for your family.

The final home option is a manufactured home, and these became available after 1976 when new housing codes came out. Manufacturers build these homes on a foundation of metal chassis, which is movable and which many lenders do not like.

Ease of Financing for Modular Homes

With down payments so low, you may wonder if it is too good to be true to finance your modular home. You should feel at ease, as financing for these houses is often easier than a traditional house!

Typically, you will need a credit score of at least 580 for approval. If you have a credit score over 650, you will receive better options for your loans with easier-to-manage rates.

The terms of your mortgage are also much shorter. You typically will pay off your modular home within 20 years at the very most, but you may face higher interest rates and monthly payments.

Financing Options

Always remain aware of the down deposit required for any financing you pursue your modular home. After making the down payment, you will have to work with your lender of choice to pay off the loan.

Special considerations are present when shopping for a lender for the mortgage of your modular home. First, determine if you will rent the land as this will minimize loan options.

Second, determine how large your modular home is as many lenders will not approve loans over $100,000. Finally, make sure to get several quotes as interest rates are different for every lender.

1. Banks

Banks, and credit unions, will give you a mortgage if you own the land for your home. The down payment required for these loans is anywhere from 10% to 20&, but you can obtain an FHA loan with a bank to put 3.5% down.

You will need an income that is at least three times the price of your monthly payment. Banks are one of the stricter options, meaning you will also need a good credit score above 650.

2. USDA Loans

USDA loans are government-funded, but they are only available if your modular home is in a rural area. If you find a house in a rural area, you do not have to make any down payment.

Do not worry about finding a home in the middle of nowhere either, as most USDA loans qualify so long as your modular house is not within city limits.

To qualify for a USDA loan, you can make no more than 115% of the median income in your area. You also require a credit score of at least 640.

3. FHA Loans

As mentioned earlier, FHA loans are available through banks and other traditional lenders, but they are also government-funded. The government does not actually provide the loan to you, but it provides insurance to banks who agree to lend to you.

Some FHA loans require no down payment, while others only require 3.5%. The Title II loans will need you to put down 3.5% or lower, while a Title I loan requires at least 5%.

For an FHA loan, you do need a credit score of at least 580. You also will have to find your lender that has FHA approval.

4. VA Loans

VA loans, otherwise called Veterans Administration loans, are only for members of the military and veterans. Your modular home has to be on a permanent foundation to qualify for a VA loan.

Down deposits of VA loans do vary, but you do not have to make a deposit. You will undergo an extensive review encompassing your employment history, credit report, and even your current income.

If you choose to go with a VA loan, you can only borrow 95% of the valuation of the modular home. This borrowing limit means that you may pay 5% out of pocket.

Final Thoughts

If you read this information and still thought to yourself, “how much of a down payment do I need for a modular home,” remember, it varies. Some loans require 20%, while others require no down payment at all.

Modular homes make great investment opportunities as their worth will rise, and you can save money for your family. They are typically more inexpensive than a brick-and-mortar home, and there are many financing options available to you.

Do not forget to ask whatever lender you choose about their down deposit requirements. Once you better understand the terms, start saving as soon as possible to obtain the perfect home for you and your loved ones.