You finally did it; you found your dream home!
The perfect floor plan. All the features you wanted.
A build schedule that fits your needs. It could not be a better deal!
Then it comes down to talking numbers, and the sales member tells you:” Yes, all of our modular homes are built to be personalized to your needs.”
Then it hits you: wait, this is a modular home.
How in the world are we going to finance a modular home?
In this blog, we help you understand all the ins and outs of modular home financing with expert help from our in-house finance manager, Tim Brazil.
So let’s get into it!
Does Zook Cabins Sell Modular Homes?
Yes!
All of the log cabins, modern cabins, and ADUs offered by Zook Cabins are built as modular homes. They are constructed primarily in a controlled factory environment and is then delivered to your property to be completed.
With more than 20 years of experience, our team can help guide you through the financing process and connect you with lenders who understand modular construction, making it easier to move from planning to ownership.
How does modular home financing work?
First things first, understanding how modular home financing works can feel a little complicated, and not all banks understand how to finance a modular home.
In our article Modular Homes vs. Manufactured Homes, Tim Brazil, Zook Cabins’ Finance Manager, explained that not all banks are created equal. Brazil says:
“[Modular homes] usually require a mortgage product such as a Home Construction Loan or a Renovation Loan,”
However, it doesn’t stop there, Brazil continued:
“There’s no need to risk using the wrong lender who doesn’t understand modular homes,” he explains. “Zook Cabins also partners with home equity lenders and unsecured lenders (non-mortgage loans that offer same-day approvals), so customers don’t always need a Construction Loan to finance their dream cabin.”
To understand what banks may be able to finance your dream home, be sure to ask your modular home sales rep about the financing we offer. They can put you in touch with Tim to figure out which type of financing will best suit your needs!
Is financing a modular home different from financing a traditional house?
Initially, yes, modular home financing will be different than financing a traditional home.
To understand how many customers get started on their modular home journey, we spoke with Matt Albrecht, one of Zook Cabins‘ Modular Home sales reps.
Albrecht says:
“When you start your modular home building process, you will typically start by applying for a construction loan. From here, your modular home will be built in our modular home shop and then finished out on-site.”
Albrecht continued: “Once your home is completed and you receive your certificate of occupancy, you can convert your construction loan into a traditional mortgage.”
This is a great way to make your modular home a primary residence. We understand that not all modular homes will be used as a primary residence, which is where working with someone like Tim Brazil, Zook Cabins’ finance manager, can be an integral part of selecting the perfect financial product for your needs.
| Modular Home Financing | Traditional Home Financing |
| Often begins with a construction loan because the home is not yet completed. | Usually begins with a standard mortgage because the home is already built. |
| Loan funds are released during different stages of construction. | The full mortgage funds are generally released at closing. |
| The home is built in a shop and finished on the buyer’s property. | The buyer purchases an existing completed home. |
| After construction and final approval, the loan may convert into a traditional mortgage. | The mortgage begins immediately after the home purchase closes. |
| Buyers should work with a lender experienced in modular construction and factory payment schedules. | Most mortgage lenders are familiar with financing completed traditional homes. |
What loan options are available for modular homes?
The good news is that there are multiple loan options for your beautiful modular home. There are conventional mortgages, FHA loans, VA Loans and USDA Home Financing. Let’s take a closer look at each of these.
Conventional Mortgages
Yes, modular homes can qualify for conventional mortgages. This is typically done by converting your construction loan into a conventional mortgage at the completion of the project build.
However, the most important thing to keep in mind is that to use a conventional mortgage, your home must have a certificate of occupancy. This is awarded by your local government after your final walk-through.
And when it comes to modular home resale value, modular homes are sold just like any other “stick-built” home, allowing them to be available for conventional mortgages. In fact t
FHA Loans
Yes, modular homes can be financed through an FHA Loan. According to Rocket Mortgage, because modular homes are built to IRC codes, they are eligible for financing through FHA loans. However, do not confuse a modular home with a manufactured home, as manufactured homes are often not FHA eligible.
Of note, as of July 11th 2026, the 21st Century ROAD to Housing Act was moved into law, expanding what FHA loans are able to cover in the modular home space.
VA Loans
Yes, Modular Homes can be financed using a VA Loan. According to Veterans United, the VA views modular homes the same as stick-built homes. With this designation, obtaining your own modular home through a VA loan should be relatively simple.
USDA Home Financing
Yes, modular homes can be financed through the USDA. According to the USDA Section 502, modular homes may be purchased using the USDA loan program. This being said, there are some stipulations on what your USDA loan can be used for when it comes to using a modular home loan. So, before you get started, make sure that you have a good understanding of what you can do with your home.
| Loan Option | Available for Modular Homes? | Key Details |
| Conventional Mortgage | Yes | Often used after a construction loan is converted into a permanent mortgage. The home generally needs a certificate of occupancy before the mortgage can be finalized. |
| FHA Loan | Yes | Modular homes built to applicable IRC building codes may qualify for FHA financing. Modular homes are evaluated differently from manufactured homes. |
| VA Loan | Yes | Eligible veterans may use a VA loan because the VA generally treats modular homes similarly to traditional site-built homes. |
| USDA Home Loan | Yes | USDA Section 502 financing may be used to purchase an eligible modular home. The borrower, property location and planned use of the funds must meet USDA requirements. |
Why do many modular home buyers need a construction loan first?
Often, your modular home project will start with a construction loan. The main reason that this is the case is that there is no collateral in the home. The home starts out as nothing more than raw building materials. However, once the home is issued its occupancy certificate, it qualifies for real estate designation and can be mortgaged.
How much money do you need for a down payment on a modular home?
“A typical down payment for a new modular home is 20% of the home’s purchase price,” says Mike King, Modular Homes Sales Representative at Zook Cabins.
“In simple terms, if your modular home costs $500,000, you’ll need an $100,000 down payment to begin the design process and reserve your place in our production schedule,” King explains. “Before your home’s scheduled delivery, an additional payment of 70% is due.”
“The remaining 10% is due once your home has been delivered and set on its foundation. Giving us the total price of $500,000)
| Total Modular Home Purchase Price | $500,000 |
| 20% Build Schedule Slot | $100,000 |
| 70% Before Delivery | $350,000 |
| 10% After Foundation Set | $50,000 |
| Completed Modular Home Project | $500,000 |
*disclaimer, your modular home price may be different than what is mentioned above. The above verbiage is to offer easy to follow steps on how the payment system works for your modualr home.
Can land equity be used toward a down payment?
Definitely!
Land equity can often cover part or all of the required down payment on a construction-to-permanent loan and is a huge asset to the interested homeowner.
Land equity is generally calculated as:
Appraised land value − amount still owed on the land = available land equity
For example, suppose a buyer owns land that appraises for $120,000 with no outstanding loan. The home, foundation and site work will cost another $380,000, creating a total project value of $500,000.
If the lender requires a 20% downpayment, ($100,000 contribution), the buyer’s $120,000 in land equity would satisfy that requirement without an additional cash down payment.
According to our expert, Tim Brazil, lenders typically value land this way:
• If owned 12+ months, free and clear: Most lenders credit the full current appraised value.
• If owned less than 6–12 months: Many lenders use the lower of purchase price or appraised value. This “seasoning” rule exists to prevent inflated related-party sales.
• If inherited or gifted: Typically the full appraised value counts, provided title is in the borrower’s name before closing. Probate or gift documentation will be required.
• Land with an existing loan: Only the equity portion counts. The lot loan is normally paid off and rolled into the new construction loan.
It is important to note that buyers will still need cash for closing costs and final fees. Land equity will not qualify for this.
What credit score is needed to finance a modular home?
“You will need a 660 – 680 minimum credit score”, says Zook Cabins finance manager Tim Brazil.
Brazil continues,
“While lenders change their tune frequently, this is the starting point. You might see information in other places where the government minimum loan amounts are down to 580, but lenders are more conservative with construction loans, so they will not usually go below 660-680. If your credit score is lower than this recommended number, you should focus on raising it before investing in a modular home.”
How does debt-to-income ratio affect loan approval?
Construction loans typically require a debt-to-income (DTI) ratio below 45%, depending on the lender and loan program. If you’re financing a new modular home, your income can play a major role in whether your loan is approved.
Your DTI compares your total monthly debt payments to your gross monthly income. Since it is one of the biggest factors lenders consider, it’s worth calculating before you apply.
When estimating your own DTI, there are two details many buyers overlook:
- Lenders use the estimated monthly payment on the completed home, including principal, interest, taxes, homeowners insurance, and any HOA fees, not the lower, interest-only payment during construction.
- If you already have a loan on your land, it is included in your monthly debt until it is paid off at closing.
If you’d like to estimate your DTI before speaking with a lender, Wells Fargo offers a helpful debt-to-income calculator that can give you a general idea of where you stand.
Construction loans usually require a DTI below 43% to 50%, depending on the loan product and the lender. If you’re taking out a very large loan, you might be wondering if your income will affect your loan approval, so let’s talk about this a bit. DTI is the ratio of total monthly debt obligations to gross monthly income. It is often the binding constraint and is a very important factor in the process.
There are two things buyers routinely forget when estimating their own DTI that we want to highlight:
1. The lender counts the fully amortized future payment on the finished home — including taxes, insurance, and any HOA — not the interest-only construction payment.
2. Any existing lot loan counts as debt until it’s paid off at closing.
To calculate your own DTI, Ramsey Solutions offers a helpful calculator to understand where you stand.
What documents are typically required during the financing process?
A modular construction loan requires documents about the borrower, land, home and construction team. Here are the important documents you’ll need to collect.
Personal financial documents
Buyers may need to provide:
- Two years of W-2s and/or tax returns (personal and business returns if self-employed)
- 30 days of pay stubs
- 2–3 months of bank/asset statements (sourcing all large deposits)
- Photo ID, Social Security number, authorization to pull credit
- Explanation letters for credit events, gaps in employment, or unusual deposits
Property documents
Common land and property documents include:
- A deed or land-purchase agreement
- Title report or title commitment
- Property survey
- Plot plan or site plan
- Existing land-loan statement
- Flood determination
- Zoning documentation
Construction documents
The lender may also require:
- Signed purchase agreement with Zook Cabins
- Full plans and specifications for the home
- Itemized cost breakdown / builder’s budget covering the home, delivery, set, site work, utilities, and finish work
- Contractor licensing and insurance (general liability, workers’ comp)
- Construction contract with the general contractor
- Draw schedule
- Building permit(s), septic and well permits, zoning approval
- Appraisal (subject-to-completion, based on plans and specs)
- For HUD-certified homes: manufacturer’s invoice, HUD certification label/data plate info, and — where the home is being converted to real property — the MCO/title surrender or affidavit of affixation
The itemized budget is often one of the most difficult pieces to complete and should be completed the first time correctly, as any later changes are extremely difficult.
Can you finance land and a modular home together?
Yes. A construction-to-permanent loan can often finance both the land and the modular home. Construction-to-permanent loan includes:
- One application, one approval, one closing, one set of closing costs.
- The loan funds the land purchase (or pays off the existing lot loan), then disburses construction funds by draw.
- When the home is complete and receives its certificate of occupancy, the loan automatically converts to a permanent mortgage — no requalifying, no second closing.
The alternative is a two-close structure: a short-term construction loan, then a separate refinance into a permanent mortgage. It costs two sets of closing costs and requires requalifying at the end — which is risky if rates rise or the buyer’s income changes mid-build. One-time close is almost always the better answer.
| Construction-to-Permanent Loan | Two-Time Close Loan |
| One application, approval and closing | Two separate loan applications and closings |
| One set of closing costs | Two sets of closing costs |
| Covers land purchase and construction | Starts with a construction loan, followed by a permanent mortgage |
| Automatically converts to a mortgage after completion | Requires refinancing and requalifying after construction |
| Less risk if rates or income change | More risk if rates rise or finances change |
How does owning land impact modular home financing?
If you own land and want to buy a modular home, you’re off to a great start! Land ownership significantly improves modular home financing in several ways:
1. Down payment. Land equity can cover part or all of the required contribution (see earlier section in article)
2. Loan-to-value. Land equity lowers LTV, which improves pricing and can eliminate or reduce mortgage insurance.
3. Underwriting perception. Owned land signals commitment and reduces the lender’s risk on a project that has no finished collateral yet.
4. Speed. By owning the land, you have no land purchase contingency.
Can you build a modular home on family-owned property?
You sure can, but there are several key structural components that matter.
A lender generally cannot place a first-lien mortgage on a house located on land owned entirely by someone who is not part of the transaction. The family member may need to transfer the parcel (or a legally subdivided portion) to the borrower.
If parents or relatives gift the land to the buyer, the land’s equity may count toward the required contribution. The lender may request a gift letter, deed, appraisal and documentation showing a clean transfer.
If your home is going on a portion of a larger family parcel, the parcel usually must be legally subdivided with its own deed, legal description, and tax ID. This can take months depending on the municipality, so be sure to start the process early!
What site preparation costs can be included in financing my modular home?
If you have a construction-to-permanent loan, essentially all costs related to making the home habitable and permanently affixed can be financed,” says Tim Brazil;
“However, they must be documented in the itemized budget and support the appraised value. These commonly include:
• Land clearing, tree removal, grading, and excavation
• Driveway and access road
• Foundation (footings, frost walls, basement, crawlspace, or engineered pier/perimeter system)
• Delivery, crane, and set of the modules
• Button-up / marriage-line work, roof and siding completion
• Utility trenching and connections
• Septic system or sewer tie-in; well or municipal water tap
• Electrical service, panel, and meter
• HVAC, plumbing, and finish work performed on site
• Decks, porches, stairs, and required egress
• Permits, engineering, and impact fees
• Final grading, seeding, and landscaping required for occupancy
Any detached buildings on the site, pools, personal property, and extensive hardscaping will not likely be financed, as the appraiser does not assign value to these.
Brazil continued, if you have questions about what can and cannot be included in your financing, be sure to ask your modular sales rep to make a note of what items you would like to have added”
Can septic systems, wells, and utility hookups be financed as a part of my modular home build?
Yes, they can be. These items are included when they are necessary to make the modular home functional and legally occupiable. Each of these has some critical details:
• Septic requires a perc test and county/state permit. On rural land this should be done before financing is finalized. If the perc test fails, the project can be killed outright and no lender will fund a home that has no legal means of waste disposal.
Perc Test Explained: Why It’s Crucial Before Buying Land to Build a House
• Wells require a permit and, for FHA/VA/USDA, potability and yield testing at completion. FHA has minimum distance requirements between the well and the septic drain field.
• Utility hookups are the biggest cost wildcard. Running power a long distance from the nearest pole can turn a $3,000 line item into a $40,000 one. To avoid this, get a written quote from the utility company as soon as you can.
What costs are not included in the advertised modular home price?
When you look at modular home models, it’s important to remember the advertised price is not necessarily the total cost of completing the project.
The modular home price covers the factory-built home, delivery, and setting the home on the foundation. If you are a buyer, you will need to budget separately for:
• Land
• Foundation
• Site work: clearing, grading, driveway
• Septic/sewer, well/water, electric, gas, propane tank
• Utility connection and tap fees
• HVAC and appliances (varies by package)
• Decks, porches, steps, skirting (varies by unit)
• Permits, surveys, impact fees
• Sales tax (where applicable)
• Appraisal, title, closing costs, and construction-loan interest
• Homeowners insurance and builder’s risk insurance
• Contingency
What hidden expenses should buyers budget for?
To answer this question we spoke with our Sales Rep Matt Kissinger. Matt says:
The things that I consistently speak with customers about that seem like hidden fees are the cost of: “ Landy Survey, Geotechnical Soil Test, Foundation Engineering, Local Building Permits, and General Contractor Management Fees”
Kissinger continued to say : “Site work tends to have the most hidden costs that surprise customers. This is a great chance for us to educate our customers on what is included and what is required for them to do outside of the purchase of their home.”
Fortunately, at Zook Cabins we have a full team of sales reps, and project managers that can help you understand how to beat the hidden costs that others forget about.
How much contingency money should be set aside for a modular home project?
Our financing team says taht you should set aside 10% of the construction budget for contingencies. Many lenders will not approve a loan without that line item in the budget.
The reason contingency matters so much is because on a construction loan, the loan amount is fixed at closing. If the project runs over, you as the buyer have to pay the overage in cash. Increasing the loan mid-build is difficult, slow, and often impossible.
According to Rocket Mortgage, contingencies also protect the homeowner. They say, “A mortgage contingency protects buyers if their financing falls through, allowing for a penalty-free exit and their earnest money back.”
For more guidance based on your property, check this table out.
| Situation | Suggested Contingency |
| Flat, cleared lot with utilities at the street | 5–10% |
| Typical build, some site unknowns | 10–15% |
| Rural, sloped, wooded, no utilities, suspected ledge | 15–20% |
How are lender draw schedules used during construction?
When you close on a modular home, your lender doesn’t just hand over the money. Instead, they’ll hold the construction funds and release them in stages, also known as draws. A typical draw flow would look like this:
1. Builder/GC requests a draw for a completed phase.
2. Lender orders an inspection to verify the work.
3. Lender may require lien waivers from subs and suppliers paid in the prior draw.
4. Title is often updated to confirm no new liens.
5. Funds are released — usually to the builder, sometimes jointly.
What happens if construction takes longer than expected?
When you have a construction loan, you’re agreeing to a set period, usually 6-12 months (occasionally up to 18). However, what happens if the work doesn’t get completed in that time? There are several scenarios that could take place:
• Extension. Most lenders will grant one, often 3–6 months,
• Rate lock expiration. On a one-time-close loan the permanent rate is usually locked for a set period (commonly 9–12 months). If the build overruns the lock, the buyer may have to pay to extend it or accept the prevailing market rate. In a rising-rate environment this can materially change the payment.
• Extended interest-only payments. The buyer keeps paying construction interest for longer.
• Default risk. If the lender won’t extend and the project isn’t complete, the loan can go into default. This is rare, but it can happen.
Do I make loan payments while my modular home is being built?
Usually yes, but on interest only, and only on funds that are being drawn.
Many construction loans require interest-only payments on the amount that has actually been released. The buyer does not initially pay interest on the entire approved construction budget.
For example, if only $40,000 has been drawn on a loan with a 7% annual interest rate, the monthly interest would be approximately $233. As additional draws are released, the payment increases.
Some loan programs allow an interest or payment reserve to be financed into the project. That reserve can cover payments if you as the buyer are also paying rent or an existing mortgage.
Why do some lenders decline modular home financing applications?
There are 3 main categories why a lender might decline your modular home financing application. The good news is that you can avoid most of these if you catch it early.
Borrower Issues
Borrowers may be declined if their credit score falls below the lender’s minimum or their debt-to-income ratio is too high once the projected full mortgage payment is included.
Other common issues include insufficient cash for closing or required reserves, income that cannot be verified or appears unstable, and recent financial setbacks such as bankruptcy, foreclosure or unpaid collections.
Property/Project Issues
When it comes to the property, the loan could be turned down because:
• Appraisal shortfall — the completed home appraises for less than the total project cost. This is the most common construction-loan killer, and it’s most acute on rural land where there are few comparable sales.
• Land not buildable: no legal access, failed perc, zoning restrictions, floodplain
• Incomplete or unrealistic construction budget
• Unpermitted or unapproved plans
• Title problems
Builder/Lender Issues
A modular home loan may be declined if the builder is not approved by the lender or cannot meet the lender’s inspection, documentation and draw requirements.
In other cases, the problem is not the borrower’s credit or finances. The lender may simply not offer modular construction financing or understand factory payment schedules, causing a qualified buyer to be declined for the wrong loan product.
How can buyers find lenders experienced with modular homes?
The key here is to work with an experienced company who already has connections. For example, Zook Cabins works with specific construction loan lenders who are very familiar with modular home financing. Call our team today to speak with Tim Brazil, our Finance Manager. We’d love to answer any questions you might have!
Do modular homes appreciate in value over time?
Yes, modular homes can appreciate over time just like traditional site-built homes. Their future value depends less on where they were constructed and more on factors such as location, condition, construction quality and demand in the local housing market. Zook Cabins offers modular homes crafted to last, with a quality you can trust.
Fannie Mae treats qualifying modular homes the same as site-built homes and generally uses the same process when selecting comparable properties for an appraisal.
To learn more about modular homes and resale value, we have a very helpful article all about it!
Can modular homeowners refinance their mortgage in the future?
You can.
Once the modular home is completed, permanently installed and financed as real estate, the homeowner can generally apply to refinance it just like a site-built house. Fannie Mae specifically gives qualifying modular homes the same financing treatment as site-built housing.
Additionally, refinancing could help you secure a lower interest rate, change the repayment term, remove mortgage insurance or access some of the home’s equity.
Remember that approval is not automatic, however. The lender will still evaluate factors like the homeowner’s credit, income, debt, available equity and the property’s current appraised value.
What are the biggest mistakes buyers make when financing a modular home?
Over the years as we’ve worked in the housing world, we’ve seen buyers make several common mistakes.
- Budgeting only for the home price
As our sales rep Matt Albrecht explained, the advertised price doesn’t include all the extra costs, and that is key to a correct budget. - Choosing an inexperienced lender
A lender may offer construction loans but still be unfamiliar with modular home deposits, factory payments and delivery schedules. Make sure to work with someone who understands modular homes! - Failing to confirm the land is buildable
Zoning problems, title issues, failed septic tests, poor soil or limited site access can delay or stop the project. - Not including enough contingency money
Without a sufficient financial buffer, buyers may have to pay unexpected construction costs out of pocket. You can jump back up to our section on contingencies to see what our Finance Manager recommends.
To avoid these common mistakes, Zook Cabins partners with a full team of experienced financial managers, project managers, and sales reps who understand the ins and outs of modular homes. It would be an honor to assist you in this process!
