Construction
Modular home finance: why the factory stage is the hard part
7 min read · By Daniel Lagden · 23 August 2026
The difficulty with modular home finance is timing, not the house. A modular builder needs substantial payment while the home is being built in a factory, but most lenders will only release funds against work fixed to your land. That mismatch, rather than any doubt about modular quality, is what makes these deals harder to finance than a traditional build.
Quick summary: a standard construction loan pays in stages as value is added to your land, because the land and the works are the lender's security. A home sitting in a factory is not attached to your land, so for most lenders there is nothing to secure. A small number of lenders now fund a meaningful share at factory stage, which is why lender selection matters more here than almost anywhere else in residential lending.
Why will most lenders not fund the factory stage?
Because their security is the land and whatever is permanently fixed to it. Progress payments on a traditional build are released after a valuer confirms the slab, frame, lock up and completion stages, each of which has added value to the security. A module in a factory has added no value to your land and, if the builder failed, the lender would have a claim over goods rather than over property. That is a genuinely different risk, and most credit policies are simply not written for it.
So how do these deals get funded?
- A small number of lenders have written specific policy allowing a substantial portion of the contract to be drawn before the home arrives on site.
- Some buyers bridge the factory stage with their own funds or with equity released from another property, then refinance once the home is installed.
- Some builders carry the factory stage themselves and take payment on delivery, which shifts the problem but usually shows up in the price.
- Government backed guarantee schemes are beginning to appear in some states, aimed squarely at this early stage funding gap.
What does a lender want to see?
A fixed price contract with a builder who is licensed and appropriately insured, a clear payment schedule tied to identifiable stages, evidence the home will be permanently affixed to the land, and confirmation the finished dwelling satisfies the relevant building standards and council requirements. The stronger and more conventional the documentation, the more lenders can consider it. Vague contracts and unusual payment terms are what narrow the field.
Do the first home buyer schemes still apply?
Generally yes, where the home is new, permanently affixed and owner occupied. Grants and duty concessions are usually assessed on the finished dwelling rather than on how it was built, so a modular home commonly qualifies on the same footing as a traditional new build. Eligibility rules differ by state and change, so confirm your own position against the relevant revenue office before you rely on it.
Is it worth the extra work?
Often, yes. Build times are typically shorter and more predictable, and price certainty is usually better because the work happens in a controlled environment. The trade is that the finance needs planning from the outset rather than arranged once the contract is signed. Get the funding structure right first and the rest of a modular build tends to be smoother than a conventional one.
Lender policy in this area is moving quickly and is current as at August 2026. Policies, guarantee schemes and grant eligibility all change, so confirm your position before you commit.
Run the numbers
Frequently asked questions
Can I use a normal construction loan for a modular home?
Sometimes, where the builder accepts payment on delivery and installation. Where the builder needs substantial payment during the factory build, a standard construction loan usually will not cover it.
Do I need a bigger deposit for a modular build?
Often you need more cash available earlier, which is not quite the same thing. Where a lender will not fund the factory stage, that gap has to come from somewhere, and planning for it is the important part.
Are modular homes valued lower than traditional builds?
A permanently affixed modular home is generally valued as a house. Transportable dwellings that are not permanently affixed are treated very differently, so how the home is installed matters a great deal.
Why do lenders differ so much on this?
Because each one writes its own credit policy, and off site construction sits outside traditional progress payment models. A handful have written specific policy for it; most have not yet.
Plan the funding before you sign the build contract
Modular finance is won or lost on the payment schedule, so the contract and the loan need to be considered together. Send us the builder's contract and payment terms and we will tell you which lenders can work with it.
Talk to us about modular financeGeneral information only. This article does not take your personal circumstances into account and is not credit advice.
