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Manufactured Homes: Pros and Cons

Manufactured homes allow you to have a livable residence fast and at a very attractive price, but there are disadvantages to consider as well. Here's what you need to know to make the right choice for you.



A manufactured home, sometimes called a prefabricated or prefab home, is a residential structure built in a factory and delivered to a site. Some are erected as a single structure, while others, sometimes called modular homes, require workers to join two or more delivered components. These buildings conform to a Federal building code rather than to local building codes where they are installed. The term "mobile home" is still sometimes used, but technically applies only to units produced before the adoption of the HUD Title 6 Building Code in 1976.[1]

Some sectors of the housing market have a negative perception of prefab dwellings, often driven by obsolete images of squalid old school trailer parks. Times have changed, and buyers now have far more options. Builders offer many custom options and produce buildings that are often indistinguishable from those built on the spot. Prefab houses enjoyed wide popularity in the 1990s, and are still a significant option: over the last five years they have made up 9% to 11% of all US housing starts.[2]

Is a prefabricated house right for you? That depends on your priorities and situation. Let's have a look at some common beliefs and perceptions, and some of the pros and cons.

The Myths
There are many common myths and misconceptions about prefabricated houses. These are a few of the common beliefs that you don't need to factor into your decision making:

Myth #1: They are more susceptible to fire.

This prevailing myth scares many buyers away, but it's simply untrue. Prefab houses are built to the same fire safety standards as any other house and have a lower fire rate than residences built on the site.[3]

Myth #2: They do not grow in value.

Manufactured homes do grow in value, though the rate of value increase can be less than that of a conventional residence. The biggest problem you may run into with selling a prefab is wariness due to prevailing misconceptions.[4] Newer units are of much better quality than the older versions that created the misconceptions, though, and market prejudice against prefabs is starting to change.

Myth #3: They are not energy efficient.

The old mobile homes were essentially exempt from energy efficiency standards. The HUD Title 6 regulations of 1976 and subsequent stricter standards passed in 1994 changed that, requiring energy efficiency on par with that of any other residence.

Myth #4: There's no variety.

This was once true, but no longer! Prefabricated houses may come with set designs, but most builders now offer dozens of different custom options. You can certainly buy a standard design, but you can also customize across a range of choices and have a unique structure.

Myth #5: You can't get financing.

This is a myth that wards off many potential buyers before they even start. Financing can be a challenge, but increasing numbers of lenders are providing loans and even specializing in manufactured homes. FHA loans are also available.[5]

The Advantages
There are two major advantages to purchasing a manufactured home.

They are far less expensive. Prices for all types of houses vary widely according to size and options, but prefabricated units are typically much cheaper than those built on site. The average cost is $62,000, while the site-built average comes in at $272,000.[6]

They can be built much faster. An average residence takes seven months to construct, with custom built versions coming in at 10 to 16 months. Prefabricated structures can be ready to deliver in only a few weeks.[7]

The Disadvantages
You will have fewer customization options. Prefab buildings offer far more options and variety today than they did even a decade ago, but there are still limits to how far your customization can go. If you have drawn up a plan for a dream house, chances are you will want it built on your lot.

Getting a loan may be harder. While you can still find lenders that will offer loans for the purchase of a manufactured home, the number of lenders offering financing will be lower than it would be for a site-built dwelling, and less competition means loans are often more expensive. This is particularly true if you do not own the land the building will be placed on, which will require you to use a chattel loan at a higher interest rate than a conventional mortgage.

The resale value will be lower. Prefab options have increased in both size and quality, but their resale value and appreciation are still below that of conventionally built residences.

They are harder to sell. Negative perceptions built around seedy trailer parks run deep and can make a prefab house harder to sell. Even though most of those perceptions are inaccurate, they persist enough to make selling a potentially complicated effort. Compound this with the slightly more restrictive lending environment, and it may be more difficult to find a buyer if you wish to sell.

Ownership: House, Land, or Both?
The decision on whether or not to go with a prefabricated house is closely linked to the question of whether you will own the building and the land under it, or just the building. Only 48% of prefab residents own both the land and the house, with 30% owning the house and leasing the land and 18% renting both.[8] Owning the structure and leasing the land has significant pitfalls, complicated by the fact that most modern prefabs are not designed to be moved once installed. Rental payments for land may increase, and resale value may be very low. On the other hand, a high quality manufactured house on well-located owned land may see value appreciation at close to the same rate as a site-built dwelling.

Financing can also be difficult if you don't own the land. If you are borrowing only for the house, you will likely have to take out a chattel loan at a higher interest rate, rather than a conventional mortgage.

What's Best for You?
As with many questions, the answer is up to you and your situation. If the price is a major consideration, if you see your house as primarily a residence rather than an investment, if you own the land you'll place the house on and if you're in a hurry to move in, manufactured homes can be a very good choice. If customization is a priority, if you're willing to take the time, and the potential for value appreciation are priorities, you'll be better off building on site. The key to making a good decision is to understand the pros and cons and evaluate them against your personal priorities and capacity.