CONSTRUCTION : Cost of Kit Just Part of Financing Factory-Made House

If you’re considering buying a factory-built home, bear in mind that coming up with the cash for a manufactured house--be it a log home or modular structure--can be more complicated than getting a mortgage on a house you’d buy through a real estate agent.

Before you even begin talking to lenders, you should know that you will have to raise cash to cover more than just the materials supplied in the manufacturer’s kit.

You also must finance what the factory doesn’t provide--such as plumbing, electricity, heating and cooling systems and interior details, such as cabinets and improvements to the site (water and septic systems).

For example, site preparation work, such as cutting and removing trees, grading the lot, excavating a foundation, drilling a well and installing a septic system can easily run $10,000 to $25,000.

If you use a general contractor who builds the entire house, including hiring subcontractors to do electrical, plumbing and other work, you can add another $30,000 to $50,000 to the cost.

Don’t forget to add the cost of shipping the package to your site. A rule of thumb here is about $2 per mile for each truck, and many homes require two truckloads.

Of course, the actual costs you incur will depend on the size of the house you buy, the quality of materials and the amount of site work needed. A good rule of thumb is that a completely finished ready-to-move-into house will cost you 2 1/2 to three times the cost of the basic package.

That means that 1,700-square feet log-home kit that sells for about $40,000 can actually wind up costing anywhere from $100,000 to $120,000 finished. This includes the cost of site preparation but not the cost of the land itself.

Although it is possible to finance the land as well as the rest of the house, the whole process goes a lot more smoothly if you already own the land. In most cases, the land amounts to the homeowner’s equity in the project--the money you put up front, much like the down payment on a regular mortgage.

Many mortgage companies and banks have no real system for financing a factory-built home. Generally speaking, you will probably need two loans--a construction loan and a home mortgage. The construction loan will provide the cash you need for the kit itself, site improvements and the other expenses you incur along the path from manufacturer’s package to a complete home.

Once the house is finished, the construction loan will be paid off and replaced by a long-term mortgage--the same type of loan you would use to buy a conventional home.

Usually, you will get these loans from separate lenders. Very few home manufacturers offer financing.