What You Need to Know About Using a VA Loan for a Modular Home

For many homebuyers, especially first-time purchasers and military families, modular homes can provide an affordable and appealing housing option. And VA loans may help make buying a modular home more accessible. VA loans allow eligible borrowers to purchase a home with no down payment But specific guidelines apply when using a VA loan for a modular dwelling

In this comprehensive guide, we’ll cover everything you need to know about utilizing a VA-backed mortgage to buy a modular residence.

What Exactly is a Modular Home?

Modular homes sometimes called prefabricated homes, are factory-built dwellings constructed off-site in sections then delivered and assembled on a property’s lot. This contrasts with manufactured homes, which are fully constructed in a factory and transported in one piece to a site.

While manufactured homes are classified as chattel (personal property), modular homes are categorized as real estate under state laws. This key difference makes modular homes eligible for traditional mortgages, including VA loans.

Here are some other defining features of modular homes:

• Constructed to meet local and state building codes
• Built with traditional construction materials like wood framing
• Designed to be permanent residences
• Can be customized with finishes and features
• Appear similar to traditional site-built homes
• Increase in value like site-built houses

Using modular construction techniques allows homes to be built faster and more affordably. And they provide consistent quality with less waste.

VA Loan Requirements for Modular Homes

The U.S. Department of Veterans Affairs has specific guidelines lenders must follow for approving VA loans on modular dwellings. These requirements include:

Permanent foundation: The modular sections must be attached to a permanent foundation like a slab, basement, or crawlspace. Temporary foundations are not allowed.

Real property classification: The home must be classified as real estate, not personal property, under state law. This is not an issue in most states.

Federal construction standards: The modules should have a label certifying the home meets the building codes of the International Residential Code. This confirms quality construction.

Minimum dimensions: Single-wide units must be at least 400 square feet. Double-wide units must have at least 700 square feet.

Property requirements: The home and land must satisfy the VA’s minimum property requirements regarding safety, structural soundness, functioning systems, and livability.

Warrantability: The home must be acceptable to VA-approved lenders, which means meeting secondary market guidelines for mortgage reselling. Not all lenders will finance modulars.

If these specifications are met, the VA treats modular homes like traditional site-built houses, making them eligible for a VA mortgage.

Pros and Cons of Using a VA Loan for a Modular

VA loans offer military borrowers several advantages for buying a home:

No downpayment requirement

No monthly mortgage insurance

Competitive interest rates

Lower closing costs

More flexible credit guidelines

These benefits can make modular homes more affordable. But there are also some potential drawbacks to weigh:

Limited lender options – Not all lenders finance modulars, so you may have less choice.

Higher rates/fees – Due to higher risk, some lenders charge slightly higher rates and fees.

Lower appraisals – Modulars may appraise for less than comparable site-built homes.

Construction delays – Factory constraints can sometimes delay completion timelines.

Less customization – Design changes are usually more limited with prefab components.

Overall, VA loans can be a great match for modular homebuyers who understand the pros and cons.

Steps to Buying a Modular Home with a VA Loan

If you decide a modular home and VA loan are a good fit, follow these steps:

Get preapproved – A lender will assess your eligibility for how much home you can afford. Being preapproved makes your offer more attractive to sellers.

Find a modular builder – Research reputable local and regional modular home builders with experience working with VA loans.

Choose a floorplan – Select a model that fits your needs and budget. Customize within the builder’s capabilities.

Sign a contract – Formalize the purchase agreement spelling out costs, construction timelines, warranties, and contingencies.

Secure a construction loan – This short-term financing will cover costs as the home is built. It’s usually provided by the modular company.

Complete construction – The builder manufactures the modular sections, transports them to your lot, and completes assembly.

**Obtain VA financing ** – Work with your lender to change over the construction loan to a permanent VA mortgage once the home is finished.

Close and move in – After final inspections, closing formalizes the transaction. Then you can move into your new modular abode!

While the process has extra steps compared to buying an existing home, those can be worthwhile to get the quality and affordability benefits of modular construction paired with the perks of a VA loan.

Tips for Choosing Land for a Modular Home

Since modular residences are built off-site, you’ll need to purchase and prepare a lot for delivery and installation of the sections. Here are key considerations when selecting land:

• Acreage – The lot must meet the minimum size dictated by local zoning laws, which vary. Standard requirements range from 0.5 to 5 acres.

• Utilities – Ensure electric, water, sewer, gas, and other utilities are feasible to access on the property. This can increase costs if connections are far away.

• Access – Choose a site with adequate road access for trucks to deliver the modules. Width, slopes, turns and obstructions are factors.

• Topography – A relatively flat lot is best to accommodate placement of sections and avoid complex foundation work.

• Soil stability – The ground must be compacted with proper drainage to create a stable base for installation.

• Permitting – Modulars are allowed under most zoning rules but confirm ahead of purchase.

Taking these things into account when selecting land for a modular home will help ensure the finished home meets VA requirements.

FAQs About VA Loans for Modular Homes

Can I get a VA cash-out refinance on a modular home?

Yes, the VA allows cash-out refinancing where you take equity out of an existing modular home. You can use the funds for any purpose.

What if my credit score is low? Can I still qualify?

The VA has more lenient credit guidelines than conventional loans. Many lenders allow scores as low as 580-620. But some have higher requirements for modulars.

Is it hard to find a lender who will finance a modular?

It may take some searching, but lenders familiar with the VA program will offer these loans. Local banks and credit unions are one option to consider.

Do modular homes appreciate in value?

Yes, modular values tend to rise comparably to site-built homes, unlike manufactured homes. But factors like quality and location impact appreciation.

Can I remove my PMI with a modular?

VA loans don’t have monthly mortgage insurance. But you can request PMI removal on a refinance once you reach 20% equity, just like a conventional loan.

Determine if a VA Modular Loan is Right for You

VA loans can make modular homeownership more feasible for eligible military buyers. Just be sure to research lenders, builders, costs, and land logistics to make an informed decision. If you put in the work upfront, a modular home can be a smart long-term housing solution with the help of a VA mortgage.