Prefab Home Loans

Please note that the information provided is drawn from public sources and is in no way to be considered financial advice. For questions and advice regarding prefab home loans, contact financial institutions directly.

With the Reserve Bank cutting the official cash rate in August 2024, and lenders trimming their mortgage rates as market conditions shift, investors, movers and first-home buyers may be eyeing new opportunities.

However, with homes loans predominantly used for existing buildings or new, traditional builds, it is not widely known that lending is also available for prefabricated home-building projects, via Prefab Home Loans.

Myths and Misconceptions

Lending is widely available for existing buildings and onsite construction of new properties but with prefab homes, lending is not as prevalent.

It’s a common myth that home loans are not available for prefabricated homes, however this is not the case.

Banks will not lend without security, or lend an amount greater than the value of the security. Typically, the security is on the property, either existing or being built on-site.

So, with prefabricated homes predominantly built offsite, it is difficult for banks to recognise the value of the property until it is connected to the land.

Another common misconception is that First Home Buyers are not able to buy a prefab, with the thinking behind it being they don't have the security or equity needed to borrow against. This also discourages low-equity buyers from buying prefabs, despite the inherent nature of prefab homes being more affordable than a traditional build.

How it Works

As previously noted, prefab home loans are generally secured against equity, typically the land the prefab home will be built on. The equity must match the value of the loan, and the value of the loan must cover the entire prefab home building project.

This is where it differs from one might call a typical, traditional mortgage.

With traditional mortgages buyers will, amongst other things, figure out what they want, what they can afford, find the best lender and gather their deposit, all working towards getting conditional approval for a home loan. They then begin the process of home shopping.

With a prefab loan, buyers with equity can start looking around for prefab homes, meeting with prefab builders to get a full cost estimate on their building project. And if the cost of the project aligns with the equity in the land, along with their deposit, they can work with a prefab home loan provider to obtain lending to the value of the project cost.

Prefab homes for first home buyers

Funding for prefabricated homes unlocks the door for first home buyers. Prefab homes have always appealed as an attractive first home solution for first home buyers and for good reason. As a more affordable and streamlined process, prefab homes are an excellently attainable new home solution. 

Similar to that of other construction loans, the bank will generally be able to lend 80% of the total project. This means that unless you have equity in an existing house or land, you’ll need to produce a 20% deposit.

Important Points

When considering whether a prefab loan is the right thing for you, remember to ask yourself:

• Is the location where you plan to site your prefab home your own land with freehold title?
• If you don’t have a freehold title, what arrangements have you made with the landowner so that you can site your prefab home on the land?
• If you plan to borrow from a bank to fund your prefab, do you know that the bank will expect to take security over the land as well as the prefab home?
• Do you have the required deposit? This can come from a combination of sources such as KiwiSaver, cash or equity release from another property.

The Right Advice

At Genius Homes we consider ourselves experts at prefab homes, inside and out. If you’re looking to buy a prefab home as a first home, an investment property, a second dwelling or for any reason at all, the best place to start is to talk to the experts in prefab home loans. 

However, for any advice relating to prefab home loans, you should always speak directly with a financial institution. Get your information first-hand from the experts in their field. 

Always ensure you obtain legal advice before you enter into any home loan agreement. 

Interested in Prefab Homes?

Our team is available to answer any questions you have, on any aspect of a prefab build, including design customisations, managing the consent process, building transportation, site works and landscaping. Get in touch via the form below.