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How to Finance Your Modular Building: A Comprehensive Guide

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Modular Building Financing can be a crucial solution for small business owners looking to save on high upfront costs and maintain cash flow while acquiring necessary equipment and structures. Whether you want to set up a new office, expand educational facilities, or need temporary space, modular buildings offer a faster, affordable alternative to traditional construction.

When considering Modular Building Financing, here’s a quick overview of your options:

  • Finance Lease with Buyout: Lease with the option to buy at the end.
  • True Lease: Lower monthly payments for temporary use.
  • Outright Purchase: Own the building, faster occupancy.

To kickstart your journey, here’s what you need to know briefly:

  1. Prepare your finances.
  2. Find the right location.
  3. Select a modular home design.
  4. Apply for suitable financing.
  5. Finalize and complete your purchase.

Taking the steps towards securing the right financing for your modular building can simplify the process and offer significant advantages. Whether it’s through loans, leases, or other financing options, ensuring you have the right financial setup is essential.

Here’s a visual summary to help you better understand your options:

Infographic summarizing modular building financing options with pros and cons of each. - Modular Building Financing infographic pillar-5-steps

Understanding Modular Building Financing

When it comes to Modular Building Financing, there are several options available. Each has its own benefits and requirements. Understanding these can help you choose the best path for financing your modular home.

Construction Loan

A construction loan is a short-term loan used to finance the building of a modular home. The loan covers the cost of construction and is typically paid out in stages as the work progresses. Before approval, you must submit detailed construction plans and get your builder approved by the lender.

– Covers construction costs
– Funds released as needed

– Short-term loan
– Requires detailed plans


A mortgage is a long-term loan used to finance the purchase of a home. For modular homes, you can apply for a conventional mortgage, FHA loan, VA loan, or USDA loan, depending on your eligibility and needs.

FHA Insured Loan

The Federal Housing Administration (FHA) backs FHA loans, making them easier to obtain for borrowers with lower credit scores or smaller down payments.

  • Credit Score: Minimum 500 with a 10% down payment; 580 or higher with a 3.5% down payment.
  • Debt-to-Income Ratio (DTI): Can’t exceed 43%–57%.
  • Mortgage Insurance: Requires both upfront and monthly premiums.

– Lower credit score requirement
– Smaller down payment

– Mortgage insurance premiums

VA Loan

VA loans are backed by the Department of Veterans Affairs and are available to qualified veterans, service members, and their spouses.

  • Down Payment: None required.
  • PMI: No private mortgage insurance.
  • Funding Fee: Ranges from 0.5% to 3.3% of the loan amount.

– No down payment
– No PMI

– VA funding fee


USDA loans are insured by the U.S. Department of Agriculture and are designed for rural or suburban borrowers.

  • Location: Home must be in a rural or suburban area.
  • Down Payment: None required.
  • Loan Guarantee Fee: Borrowers must pay this fee.

– No down payment
– Financing for closing costs

– Location restrictions
– Loan guarantee fee

Personal Loan

Personal loans can be used to finance modular homes, especially since these homes often cost less than traditional ones. These loans are unsecured, meaning no collateral is required.

  • Amount: Up to $45,000, sometimes up to $100,000.
  • Interest Rate: Higher than mortgages.
  • Repayment Term: Shorter than mortgages.

– No collateral needed
– Easier application process

– Higher interest rates
– Shorter repayment terms

Chattel Mortgage

A chattel mortgage is used for semi-permanent or mobile structures like manufactured homes. It can also finance modular homes.

  • Secured by Personal Property: Modular homes are considered personal property.
  • Interest Rates: Higher than traditional mortgages.
  • Repayment Terms: Shorter.

– Suitable for semi-permanent structures
– Can finance both purchase and construction

– Higher interest rates
– Shorter repayment terms

Visual Summary

Here’s a visual summary to help you better understand your options:

financing options summary - Modular Building Financing

Navigating these financing options can be complex, but understanding the basics will help you make an informed decision. Next, we’ll look at the steps to secure financing for your modular building.

Steps to Secure Financing for Your Modular Building

Securing financing for your modular building involves several key steps. Let’s break down each step to make the process clear and straightforward.

1. Gather Credit Documents

First, you’ll need to gather all necessary credit documents. These include:

  • Tax returns
  • Pay stubs
  • W-2s
  • Bank statements
  • Identification

Having these documents ready helps your lender assess your financial health and pre-qualify you for a loan. A knowledgeable loan originator can quickly determine the amount of financing available to you.

2. Assemble Construction Documents

Next, you need to prepare your construction documents. These include:

  • Proposed contract for your building(s)
  • Third-party bids for site and utility work
  • Floor plans
  • Elevations
  • Specifications list

Your construction lender will assist you in preparing these documents. This step must be thorough and accurate to keep your project on track.

3. Initial Construction Budget

Once your documents are ready, the lender will generate an Initial Construction Budget. This budget includes:

  • Hard costs: Actual bid estimates for the work.
  • Soft costs: Closing costs, inspections, etc.
  • Contingency: Extra funds to cover any cost overruns.

The lender ensures that your budget falls within your financing qualifications. This step typically takes 24-48 hours unless additional information is needed.

4. Specs and Plans Appraisal

The lender will then submit your plans and specifications to a local appraiser for a Specs and Plans Appraisal. This appraisal determines the market value of your new home and ensures that your loan meets lending guidelines. This process usually takes about two weeks, depending on local demand.

5. Underwriting

Once the appraisal is satisfactory, all your documents (Specs and Plans Appraisal, Credit Documents, and Construction Budget) are submitted to Underwriting for loan approval. This step typically takes 2-4 days, depending on demand and seasonality.

6. Closing Process

When your loan is “Approved to Close,” the lender sets up the closing with a local title company. You will sign all the loan documents for the Construction Loan. During closing, you’ll also learn how to make draw requests for payments to your builder and subcontractors. Your construction loan acts as a line of credit during the building process, and you only pay interest on the amount used.

7. Conversion to Mortgage

Once your home is complete and ready for occupancy, your Construction Loan is converted to a typical Mortgage End Loan. This mortgage can last for 15, 20, 25, or 30 years. At this stage, you stop making interest payments on the construction financing and start paying your mortgage, which includes principal, interest, taxes, and insurance.

By following these steps, you can secure financing for your modular building efficiently and move forward with your construction project.

Financing Options Detailed

When it comes to financing your modular building, there are several options available. Each has its own set of requirements and benefits. Let’s break them down.

Conventional Loan

Credit Score: A higher credit score (usually 620 or above) is required for a conventional loan.

Down Payment: Typically, you’ll need to make a down payment of at least 5% to 20% of the home’s purchase price.

PMI: If your down payment is less than 20%, you’ll need to pay for Private Mortgage Insurance (PMI).

FHA Loan

Credit Score: FHA loans are more forgiving on credit scores. You can qualify with a score as low as 500 if you make a 10% down payment. For scores of 580 or higher, the down payment can be as low as 3.5%.

Down Payment: As mentioned, it varies based on your credit score but can be as low as 3.5%.

Mortgage Insurance: FHA loans require mortgage insurance premiums that are both upfront (due at closing) and monthly, usually lasting the life of the loan.

VA Loan

Eligibility: VA loans are available to qualified veterans, service members, and their spouses.

Funding Fee: There is a VA funding fee that ranges from 0.5% to 3.3% of your loan amount.

No Down Payment: One of the significant benefits of a VA loan is that it doesn’t require a down payment.


Rural Location: Your modular home must be located in a rural or suburban area to qualify.

No Down Payment: USDA loans do not require a down payment, making them an excellent option for low- to moderate-income borrowers.

Loan Guarantee Fee: Instead of PMI, you’ll pay a USDA loan guarantee fee.

Construction Loan

Short-term: Construction loans are short-term loans that cover the cost of building your modular home.

Detailed Plans: You’ll need to submit detailed construction plans for approval.

Builder Approval: The lender will also need to approve the builder responsible for constructing your home.

Personal Loan

Unsecured: Personal loans are unsecured, meaning you don’t need to put down any collateral.

Higher Interest Rates: These loans generally come with higher interest rates compared to mortgages.

Shorter Repayment Terms: Repayment terms are shorter, resulting in higher monthly payments.

Chattel Mortgage

Semi-permanent Structures: Chattel mortgages can be used for semi-permanent or mobile structures like manufactured homes.

Higher Interest Rates: These loans usually come with higher interest rates.

Secured by Personal Property: The loan is secured by personal property, and if you default, the lender can repossess the home.

Understanding these financing options can help you choose the best one for your modular building project. Each has its pros and cons, so consider your specific needs and financial situation when making a decision.

Navigating Challenges in Modular Building Financing

Financing a modular building comes with unique challenges. Here’s how to navigate them:

Land Equity

If you already own land, you can use its equity as a down payment for your construction loan. This can significantly reduce your out-of-pocket expenses. According to Noreast Capital, land equity can be credited, making it easier to secure financing.

General Contractor

Being your own general contractor can save money but comes with risks. Lenders evaluate your construction experience before approving this. As noted, the lender may allow this on a case-by-case basis, especially if you have a background in construction.

Staying in Current Home

You might wonder if you can stay in your current home while your modular home is being built. The good news is, yes, you can. However, you must qualify for the new financing in addition to your current monthly obligations.

One-time Close

A one-time close simplifies the financing process. It combines the construction loan and the mortgage into a single loan, reducing paperwork and closing costs. Noreast Capital offers both one-time and two-time close options, giving you the flexibility to choose what works best for you.

Navigating these challenges can make the financing process smoother and more efficient. Next, let’s look at some frequently asked questions about modular building financing.

Frequently Asked Questions about Modular Building Financing

Can I finance a modular home on owned land?

Yes, you can finance a modular home on land you already own. In fact, owning the land can make the financing process easier. Lenders see it as a lower risk because you already have equity in the property. This can improve your chances of loan approval and possibly get you better interest rates.

How long can you finance a modular home?

The length of time you can finance a modular home depends on the type of loan you choose.

  • Conventional loans typically offer terms of 15 to 30 years.
  • FHA loans also offer terms up to 30 years.
  • VA loans can go up to 30 years, depending on the lender.
  • USDA loans usually have terms of 30 years.
  • Construction loans are short-term, usually 12 months, but they can convert to a traditional mortgage once construction is complete.
  • Personal loans usually have shorter terms, often between 1 and 7 years.
  • Chattel mortgages for semi-permanent structures typically range from 15 to 20 years.

Can I be my own general contractor for a modular home project?

Yes, you can be your own general contractor, but it comes with challenges. Acting as your own general contractor can save money, but it requires a lot of time and expertise. Lenders might be hesitant to approve loans if you’re not experienced in construction management.

It’s crucial to have detailed plans and a clear budget. Some lenders might require you to hire a professional contractor to oversee the project, especially for construction loans. Always check with your lender to understand their specific requirements.

By understanding these aspects, you can make informed decisions about financing your modular home. For more detailed guidance, Noreast Capital is here to help you navigate the process.


At Noreast Capital, we understand that financing your modular building can seem overwhelming. With our expertise and dedication, we make the process as smooth and straightforward as possible.

Noreast Capital offers a variety of financing options tailored to meet your specific needs. Whether you’re looking to finance a small office, a quick setup/takedown garage, or a full-scale modular home, we have solutions that fit your budget and timeline.

Our commitment to customer service means we provide quick turnarounds on approvals and flexible leasing options. We know that time is of the essence in the business world, so we strive to keep you on track with your project goals.

We invite you to reach out to us for personalized assistance. Our modular building financing specialists are ready to help you every step of the way. With Noreast Capital, you can trust that your financing needs are in capable hands.

For more information, visit our Modular Building Financing page. Let’s build your future together.

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