What Is The Process To Get Finance For A Modular Home?

If you’re planning to build a house, you’ll likely need some financing to get the ball rolling. The question is – can you get financing for a modular home? 

Many of our clients have required financing to build their modular home, and we want you to know that it is achievable! Over the years we have provided helpful guidance to many of our clients on how to secure finance for their Anchor Home project, and we’re here to support you every step of the way. 

To help you bring your home to life, we’ve explained everything you need to know about the modular home finance process.

Why is modular home finance different?

Unlike conventional homes that are built on-site, modular homes are predominantly constructed in a factory. This means that lenders have no security over a construction loan until the house is delivered and installed on the building site. For this reason, many banks have been hesitant to approve these loans and clients looking to build can sometimes find it challenging to secure funding for a modular home project. 

However, as modular homes become increasingly popular, lenders are beginning to change their approach. To increase your chance of financial approval, we recommend following our steps below or reaching out to us directly to provide tailored advice on how to approach your broker or bank.

Modular Home Costs

Before applying for any financing, it helps to know what the costs of a modular home project will be. At Anchor Homes, you can access our most up-to-date base prices for our standard range by downloading our price list online. Following that, we recommend having a conversation with our team to chat about what you want your dream modular home to look like. They'll then be able to provide you with an estimate specific to your project.

Once an estimate for your project is presented, this is the key to starting the process of obtaining financial approval from your lender to build your dream modular home. Keep reading to find out what to do next. 

Two-step guide: Financing your dream modular home

As a trusted Australian modular home builder, we recognise that many of our clients have questions about financing their modular home project. That’s why we’ve put together this simple, easy-to-understand two-step guide to help those looking to secure the finance they need. 

Step 1 – Pre-Approval

The first step to financing your modular home is getting pre-approval from a bank or lender. Pre-approval is where a bank provides a high-level assessment of your financial ability to afford a loan. Here's what you need to know:

• When to apply: You can apply for pre-approval just before signing your pre-contract.
• What's required to apply: At this stage, you will just need to present your individual estimate for your project provided by our team, not the final contract price documentation. No formal valuations are required as the documentation is incomplete, and the contract price is not yet finalised.
• Why it matters: There will be a few months of pre-contract work before applying for a formal loan application. This includes work such as drafting, planning, exterior and interior selections and more. This means that you will not have a final contract price until all the pre-contract work is complete.  
• The challenge: Some lenders may advise skipping the pre-approval stage and will recommend that you need to apply for a formal loan. This is because they are likely unfamiliar with modular homes and the modular construction process. This is not helpful if you would like to know your financial capacity to afford a loan before moving forward. 
  
• The solution: Specify to your lender that you are building a modular home. This is important as they may get confused and believe you are building a kit home or are acting as an owner builder – which is not the same and a common misunderstanding. At Anchor Homes we build modular homes, and we act as the home builder.

If you get stuck at this point, do not be discouraged. Our helpful team can assist you to help your preferred lender understand the process or we can provide recommendations of brokers who specialise in financing modular homes.

Please note, that once pre-approval is granted from your lender, it will have an expiry date, but it will provide you with an idea of your lending capability for better peace of mind.  

Step 2 – Formal Loan Application

Once your pre-construction work is complete, it's time to apply for the formal loan. Here's what you need to do:

• When to apply: Once your contract price and documentation are all complete, you can apply for a formal loan.
  
• What's required to apply: You'll need to submit all the necessary documents to the bank. They will check your financial background (due diligence, valuations, capacity to repay etc) to assess if you qualify for the loan. To ensure everything runs smoothly, ask your bank how they will be able to release funds. Releasing funds at the necessary time must follow the individual progress payment schedule listed in your contract. 
  
• The Challenge: Frequently, banks will suggest refraining from releasing payments to a home builder until the dwelling is completely constructed, or at the very minimum, until it's been installed on the site, due to their security concerns.
  
• The Solution: To address the security concern, we can help facilitate discussions with the bank to alter the standard progress payment terms. 

Presented below is a table outlining the conventional progress payment schedule. As stated above, we are open to adjusting this to align with your individual funding requirements. 

Standard modular home progress payment schedule:

The future of modular home lending

Exciting developments are underway for financing modular homes to help combat the common challenges. In countries like New Zealand, banks like BNZ and Westpac NZ have embraced the modular building process and joined forces with multiple modular builders over the country. This collaboration has made it easier for clients to finance their modular homes with minimal hassle.

As a leading Australian modular home builder, Anchor Homes is committed to ensuring a smooth and swift process for our clients. Along with other industry experts, we are already in discussions with Australian banks to try and implement a similar system here.

Want to know more?

If you're feeling stuck, need some assistance explaining modular home finance to your lender, or want to take the next step, we're here to help. Ask our team for more industry advice.


Disclaimer: We are not a lending institution or broker and cannot offer you financial advice. All the quoted scenarios above are based on our anecdotal experience and feedback from clients. We have shared this information to be helpful to you and we do not make any guarantees as to your ability to obtain finance.