Getting financing for a prefab house isn’t that different from any other construction loan. There are basically two options of types of loans:
Construction-to-permanent loans - these are also known as “single close” loans. The loans convert to a permanent long term mortgage when the construction is complete.
Construction only loans - these are loans that you have only during the construction process and typically they are short term (1 - 2 years), often interest only, and they are often paid out in draws (or a portion at a time) based on progress. Typically, the borrower would refinance this loan to a conventional mortgage after the completion of construction.
These loans typically require a down payment of at least 20 percent.
There are a number of smaller local and regional banks and credit unions that offer these products, but a few notable ones that are recommended by prefab home builders include: Umpqua Bank and First Republic Bank .
Note that each of these loans are project based, so while your credit score and income do matter, you can expect the lender to have a strong interest in the project. Here for example is a diagram of the process from Umpqua, which as you can see involves submission of project plans as part of the application process.
ADU / tiny home financing
If you’re financing a smaller project such as an ADU, a tiny home, or a smaller square footage house, then you may want to use a personal lender. Generally, the lenders lend up to $100k at rates that are a bit higher than a 30-year mortgage, and the terms are generally much shorter than 30 years. These loans can be for up to 100% of the cost of the project, are not secured by collateral, and are generally mostly, underwriting you as a borrower based on your income and credit score.
A few lenders with strong rates and higher lending amounts include:
Lightstream - lends up to $100k with terms as long as 144 months (12 years)
Sofi - lends up to $100k with terms as long as 84 months (7 years)
The other way that people frequently finance ADUs is by either taking out a home equity loan (HELOC) or doing a refinancing of their existing mortgage. In either scenario, you are tapping into the equity of your own home.