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Among upscale prefab homes, the most affordable ones are generally modular and are built in units of entire rooms or larger. Alchemy Architects, Michelle Kaufmann Designs and Office of Mobile Design charge roughly $125,000 to $175,000 for a 1,000-square-foot modular house. You'll pay about the same amount to finish the house.
The major limitation of modular houses is size: Modular units must be able to travel down highways. "We have to do a lot of thinking within the box," jokes Joseph Tanney, a partner at Resolution: 4 Architecture, a New York firm that builds prefab homes using modular and other methods. What's more, modular houses often need thicker-than-usual interior walls to ensure that they will withstand the stress of being lifted onto your lot by a crane. (Panelized homes don't face this problem.) These thicker walls reduce the number of floor plans because there are only so many ways the fatter walls can be disguised.
Caveats aside, the lower costs of modular homes trump other factors for many buyers. Scott McGlasson says that it was the prefab's low cost that made their lakefront home a savvy real estate investment. Adds Lisa: "It's so nice to own an investment we can enjoy."
See our directory of architectural firms and builders to find out where to buy an upscale prefabricated home.
Key decisions
Although the prefab components come at a set price, you may still confront overruns at the site. The amount of finishing work left undone varies by architectural firm and builder. For example, Empyrean International offers a general contractor to oversee construction, including the management of subcontractors to do your electrical, heating and flooring work. Empyrean charges between $175 and $275 per square foot for a completed NextHouse, one of its top models. At the minimalist end of the prefab spectrum, Rocio Romero produces the shell of your house for about $29 per square foot, leaving it to you to hire contractors to finish the job at a further cost of about $120 per square foot.
Finding a contractor to assemble a prefab home can be an issue. Some won't take what they consider small-potatoes projects. Also, when they learn you're building a second home, contractors may hike their prices because they assume you're rich. "Say 'second home' and contractors smell money," notes Michael Buchanan, who built an upscale modular home in Berkshire, N.Y.
To minimize hassles, try having as much of your house finished in the factory as possible. Buchanan, who wrote about his experience in PreFab Home (Gibbs Smith, $25), wishes he had stuck with the standard interior and exterior details offered by his manufacturer, Simplex, instead of hiring contractors to install his own design elements. His 3,800-square-foot house (not including the basement) had a factory cost of about $375,000, with $275,000 more in on-site finishing costs.
Second-home loans
Unlike mortgages for existing homes, prefab homes require construction loans. With this type of loan, the bank parcels out money in stages, sending inspectors at each stage to certify that the work has been done as claimed. Interest rates for these interest-only loans were recently about 1.3 percentage points higher than the average for 30-year fixed-rate mortgages, says Don Taylor, of Bankrate.com.
Don't be penny-wise and pound-foolish. Paying a slight premium to receive financing through a bank that has a specialized department for prefab (also called systems-built or factory-built) houses is generally worth it, says Chris Condon, author of Building Real Estate Riches (McGraw-Hill, $17). Banks familiar with prefab projects, such as Indymac and M&T Mortgage, are less likely to disrupt ongoing construction than are other banks. Banks unfamiliar with prefab projects may not be readily willing to pay the large deposit of up to 75% of the loan that prefab factories often require up front.
The most common financing is the construction-to-permanent loan, which converts to a conventional mortgage once your home is completed. This type of loan has an advantage: You face only one closing process and one set of fees. But the loan often comes with fewer repayment options than a conventional mortgage.
Another choice is to start with a construction-only loan and then get a loan with different terms after the construction is finished. Interest rates will be about the same as for a construction-to-permanent loan. This process adds fees and a second closing, but you may get better loan features because you will be able to shop for your mortgage from any bank instead of just the construction-loan specialist.
Next: See our slide show of ten upscale prefabricated homes
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