What is a Prefab Home and Should You Buy One?

Types of prefab houses

“Prefab house” is a blanket term that refers to a few different types of prebuilt houses, namely modular and manufactured houses. Let’s dive into the different types of prefab homes you may come across and discuss some of their differences and similarities.

Modular homes

Modular houses are prefabricated homes that are created piece by piece in a climate-controlled location and then transported to a homeowner’s property, where they’re assembled and built on a permanent foundation.

Because they’re built on a permanent foundation, modular homes are often indistinguishable from standard single-family homes and may be considered single-family homes by lenders. Modular homes are a popular starter home option because they offer a variety of styles and floor plans, and owners can add on modular home additions as their family or needs grow.

Modular homes are built to strict standards, and like traditional stick-built houses, can appreciate in value over time. Because they’re often treated like traditional homes after construction, modular homes tend to be easier to finance than other prefab homes.

Manufactured Houses

Manufactured houses are a type of prefab home you might know as a mobile home. Manufactured homes were known as mobile homes until 1976 when the Department of Housing and Urban Development (HUD) issued new regulations for mobile home safety standards and construction codes. Any “mobile home” built after 1976 is legally referred to as a manufactured home because it meets the new guidelines.

Manufactured homes are built on a permanent chassis in a factory and transported to a build site. The main differences between manufactured homes and other prefab homes are that manufactured homes don’t rest on a permanent foundation, so they aren’t considered real property. If a manufactured home is put on a permanent foundation and attached to land as real property, that may help expand your financing options. And the other difference is that manufactured homes are built to meet strict HUD standards for safety and construction.

Kit homes

A kit home is a type of prefab house that is purchased as a set of parts and then assembled by the home buyer. Kit homes were famously popularized by the Sears, Roebuck and Co. catalog. From 1908 to 1940, customers ordered houses from the models displayed in the catalogs. The kit of parts was typically transported to the customer by rail car.

Kit houses still exist today as mail-order prefab homes and can be purchased from a variety of builders and shipped to your property. Many tiny homes are built from modern home kits.

Panelized homes

Panelized homes are similar to modular homes. They are built in sections at an off-site location or factory and then shipped to a property to be assembled. Modular homes are essentially constructed one room at a time by putting together premade “modules.” Panelized homes come in the form of walls or panels that must be put up like a stick-built home.

Some panelized homes have doors and windows already installed, while others may require additional parts to be added on-site. Like modular homes, once fully constructed, these homes are often indistinguishable from traditional stick-built homes.

Structural insulated panel homes

Structural insulated panel homes, or SIP homes, are similar to panelized homes – but with one key difference. SIP home panels are purchased and shipped to buyers just like panelized homes, except in this case, the panels are made of two oriented strand boards (OSBs) with a thick layer of insulating foam between them.

The panels provide an alternative to typical wood framing that is faster to install and more energy efficient. SIPs can be customized by builders to fit almost any home design, including a hobbit house. They are a great option for anyone who wants a more sustainable and energy-efficient prefab home.

What are the pros and cons of prefab homes?

Here are some benefits and potential drawbacks to help you understand what you’re getting into with a prefab home.

Pros

• Affordable and sustainable: Most prefab homes are more affordable and sustainable than traditional stick-built homes because they’re manufactured and built using a set number of premade parts or sections, eliminating material waste.
• Energy efficient: Prefab homes are usually built to be more energy efficient and weather resistant.
• Fast construction: Prefab homes are generally built faster than traditional stick-built houses. You can move in within months rather than a year or more.
• Customization: Many modern prefab homes can be styled and customized similarly to a stick-built home. Many manufacturers allow you to choose appliances, wall finishes, baseboard styles and more.

 Cons

• Financing limitations: It can be challenging to secure financing for prefab home construction, especially if the home is built on a chassis rather than a permanent foundation. If your home is installed on a permanent foundation later on, that can help broaden your financing options.
• Land costs: When building a prefab home, you need to own the land it sits on, which is an additional cost to the cost of building the house.
• Location and utility regulations: Depending on zoning laws in your area, it may be challenging to find a lot where you can build a prefab home and hook it up to utilities, like water and electricity.
• More upfront costs: During the home buying process with a traditional house, you make an upfront down payment and then pay off the rest of the house over time. With prefab homes, you pay upfront for the land purchase, the prefab home and labor and construction. While you may be able to take advantage of financing options, the high upfront costs can deter some.

Are prefab homes cheaper than standard houses?

Prefab homes tend to be one of the cheapest ways to build a house. On average, they’re about 10% – 20% cheaper than traditional homes. And because sections of the home arrive at the build site already constructed, on-site construction time gets cut down.

While it is typically less expensive to construct a prefab home than a traditional house, you should keep in mind that the cost to build doesn’t include other expenses, such as the cost of the land the home is on, the cost of hooking up utilities, etc.

Prefab home financing

It’s important to note that not all mortgage lenders offer financing for all types of prefab houses. Possible financing options for prefab homes are construction loans or a chattel loan, which is a special financing option for personal property.

Your loan options will depend heavily on the type of prefab home you want to buy. Rocket Mortgage^® finances modular homes built on permanent foundations. Manufactured homes are also available for financing if they meet the following requirements:

• Built on or after June 15, 1976, and has a HUD tag
• Permanently affixed to land
• Titled as real property with land

FHA loans for manufactured homes require a foundation inspection to ensure there are no foundation issues. The inspection must meet the standards set in the Permanent Foundations Guide for Manufactured Housing. You can also use a previous home inspection to qualify for an FHA loan.