Modular homes offer many benefits over the typical home building process, two of those being upfront certainty in the budget and construction timelines; however, securing finance for your modular home can uncover a few additional challenges with the banks. With fast rising house prices and intense housing market fluctuations, choosing prefab homes in Australia is becoming the consumer go-to when choosing to build.
Currently, modular construction and prefabrication represents around three per cent of Australia’s construction industry, although that is predicted to rise to nearly fifteen per cent by 2025. Despite this growth, the finance sector is still lagging behind the rest of the industry and this is causing some difficulties for people interested in purchasing modular homes.
Simply put, although the construction process of modular homes provides you with certainty around budget and timelines, it doesn’t fit the standard loan categories of most banks. Most mainstream lenders have yet to develop a loan specifically for this type of construction, which has made it difficult to be approved for a modular home loan. Normally for a conventional onsite build, a bank loan for a new house takes one of two approaches:
A conventional construction loan is where the bank releases payments in increments, after the builder has completed key stages on the house.
An owner builder loan is where you fund the initial or subsequent stages of the build and the bank reimburses you when the stage is completed.
Typically banks require some form of security for the loan whilst the home is still under construction.
In the case of a conventional onsite build, the security is usually a mortgage on the land plus the portion of the house that has been constructed to date. With a modular home, the bank only has your land as security during the construction phase.
Our volumetric construction methodology means that approximately 95% of the construction occurs offsite in our construction facility and therefore built on a different premise to the mortgaged block of land. This means that the bank has no mortgage, and therefore no security on the modular home whilst it's still under construction.
Fortunately, things are slowly changing and there are a few tips that could make your finance journey easier.
It’s wise to obtain pre approval before you get too far down the road with your Ecoliv modular home. There are still a lot of misconceptions about modular homes and it’s important to make clear that your new prefab modular home is not a mobile home, but a permanent structure built offsite which can be removed at any time.
Banks are often not familiar with the process around a modular build and this has only recently started growing in popularity as a type of loan request. As most banks assess loan applications on a case-by-case basis, it’s important that your bank understands exactly what the building process will be to give you the best chance for finance.
Our 15 years of experience and affiliation with Bailey Finance Consultants can help you with the right advise and lending options to suit your personal financing needs. Chris Bailey, the principal of Bailey Finance Consultants has over 30 years’ experience in the finance and banking sector specialising in property finance.
Bailey Finance uses cutting edge financial software which enables them to calculate your borrowing power and compare the features and interest rates across the many loan products available from a wide panel of lenders.
Equity is a very useful tool to smooth the way for your modular home loan. This could mean equity in another property. For instance, if you plan to build a modular holiday house, you could borrow against your existing home or if the proposed site for your modular home is land that you already own outright, most banks would lend up to eighty per cent of the value of the land.
2. Guarantor/Owner Builder
If you’re a first home buyer looking to build a modular home, you could look into having a family member be the guarantor for your loan. Alternatively, if you have saved enough to personally fund the initial stages, you could talk to the bank about an Owner Builder loan structure.
3. Personal Loan and Re-Financing
Some of our past clients have made arrangements with their financial institution to take out a personal loan then refinance to a home loan when the house is delivered on site.
Over the years, Ecoliv has worked with many clients to provide the assurances and documentation they needed in order to secure a modular home loan, so be sure to involve us right from the start to begin a stress-free build process. Good communication with your builder is vital in all aspects of the building process, including financing your modular home.
With the expected rapid growth in the modular homes market, banks will be developing loan products specifically for offsite constructions in the very near future. At the time of writing in February 2023, we’ve been assured that at least one of Australia’s Big Four major banks is already very close to introducing a modular home loan. In the meantime, working with a mortgage broker or bank to come to an agreement based on existing loan structures can be relatively simple.
Considering a modular home? Start the discussion with us today. No matter what stage of the process you’re at, we can help.
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