What is a Prefab Home and Should You Buy One?

If you have been researching alternatives to traditional housing, you may have come across the term prefabricated home, often shortened to prefab home. These homes have been around for decades and are known for being more affordable, energy efficient, and faster to build than standard houses. But what exactly is a prefab home, and should you consider buying one?

This guide explains the different types of prefab houses, their benefits and drawbacks, financing options, and what to know before deciding if one is right for you whether you’re looking for one in Los Gatos, CA or Buffalo Grove, IL.

In this article:
What is a prefabricated home? 
Types of prefab houses
Are prefab homes cheaper? 
How long does prefab homes take to build? 
Pros and cons of prefab home
Do I need a real estate agent for a prefab home?
Prefab home financing options
FAQs

What is a prefabricated home?

A prefab home is built in sections at an off-site facility and then transported to the homeowner’s property for assembly. Some are delivered in pieces and constructed on-site, while others arrive already built and simply set in place.

Because much of the work is done in a controlled environment, prefab homes can be built more quickly, with less material waste, and at a lower overall cost compared to traditional built houses. This also makes them more of an appealing option for people trying to decide whether it is cheaper to buy or build a house.

Types of prefab houses

“Prefab house” is a blanket term that refers to various types of prebuilt houses you may come across each with unique features.

Modular homes

Modular homes often look the same as traditional single-family homes, meet strict building codes, and can appreciate in value over time. Because they sit on a permanent foundation, lenders usually treat them like standard homes, which makes financing easier.

Modular homes are a popular starter home option because they offer a variety of styles and floor plans, and owners can add on modular home additions as their needs grow.

Manufactured Houses

Also known as mobile homes, manufactured homes have been regulated under the Department of Housing and Urban Development (HUD) standards after issuing safety and construction code regulations in 1976. They are built on a permanent steel chassis and transported to the home site. Unlike modular homes, manufactured homes do not always rest on a permanent foundation, which can affect financing options, however if they are placed on a foundation and titled as real property, more loan programs become available.

Kit homes

A kit home is a type of prefab house that is purchased and delivered as a package of parts with instructions and then assembled by the home buyer. These were famously popularized by Sears, Roebuck and Co. in the early 1900s. 

Kit houses still exist today as mail-order prefab homes and can be purchased from a variety of builders and shipped to your property. Many modern tiny homes are built from home kits.

Panelized homes

Panelized homes are similar to modular homes. However, panelized homes come in the form of walls or panels that must be put together like a traditional built home. They start as large built in wall panels at an off-site location or factory, then transported to the building site or property for assembly. 

Some panelized homes have doors and windows already installed, while others may require additional parts to be added on-site. Like modular homes, once fully constructed, these homes are often indistinguishable from traditionally built homes.

Structural insulated panel homes (SIPs)

Structural insulated panel homes, or SIP homes, are similar to panelized homes – but with one key difference. SIP home panels are made of two oriented strand boards (OSBs) with a thick layer of insulating foam between them.

These panels provide an alternative to typical wood framing as it’s faster to install and more energy efficient. SIPs can be customized by builders to fit almost any home design. They are a great option for anyone who wants a more sustainable and energy-efficient home.

Are prefab homes cheaper than traditional houses?

Prefab homes are generally less expensive to build, often costing about 10 to 20 percent less than a traditional built home. However, keep in mind that the listed construction price does not include land purchase, site preparation, or utility hookups.

How long does it take to build a prefabricated home?

The timeline for putting together a prefabricated home will vary based on the type of home chosen and its complexity. In general, it takes a few months to assemble most prefabricated homes. While in comparison, traditional homes can take anywhere a year or longer to build.

What are the pros and cons of prefab homes?

Here are some benefits and potential drawbacks to help you understand what you’re getting into with a prefab home.

Benefits of prefab homes

• More affordable: Typically 10 to 20 percent cheaper than traditional homes. 
• Faster construction: Prefab homes are generally built within a few months, quicker than traditional built houses. 
• Eco-friendly: Reduces waste by approximately 20 percent and 50 percent lower energy consumption.
• Customization: Many can be styled and customized with choice of appliances, wall finishes, baseboard styles and more.

 Potential drawbacks of prefab homes

• Financing limitations: Not all lenders finance prefab homes, especially if the home is built on a chassis rather than a permanent foundation. 
• Land costs: When building a prefab home, you need to own the land it sits on, which is an additional cost to the cost of building the house.
• Zoning and utility rules: Depending on zoning laws in your area, it may be challenging to find a lot where you can build a prefab home and hook it up to utilities, like water and electricity.
• High upfront costs: Unlike traditional homes where costs are spread out, prefab homes often require more money upfront for land, construction, and assembly. 

Can you hire a real estate agent when buying a prefab home?

Purchasing a prefab home is different from buying a traditional house, but you can still benefit from hiring a real estate agent. Many buyers purchase directly from prefab builders, yet an agent can offer valuable guidance that goes beyond selecting a model.

A real estate agent can help you identify suitable land, navigate local zoning requirements, and ensure utilities can be connected to the property. Financing is another area where an agent’s expertise matters, since not all lenders are familiar with modular or manufactured home loans. An experienced agent can point you toward financing options that fit your situation.

Beyond logistics, an agent acts as your advocate. They can review contracts, negotiate on your behalf, and advise you on the long-term value of the property. Since prefab homes vary widely in design and construction standards, having a knowledgeable professional in your corner provides peace of mind and helps you avoid costly mistakes.

Financing a prefab home

It’s important to note that not all mortgage lenders offer financing for all types of prefab houses. Financing depends on the type of prefab home you choose. Modular homes built on permanent foundations are eligible for traditional mortgages through Rocket Mortgage. Manufactured homes can qualify for FHA loans or other financing if they meet the HUD standards, are permanently affixed to land, and titled as real property. 

Other financing options include construction loans or chattel loans, which are designed for personal property rather than real estate.

Is a prefab home right for you?

A prefab house may be a great option if you want a cheaper, more sustainable and energy-efficient housing option, but prefab homes can be hard to finance, and they aren’t for everyone. Weigh all the pros and cons against your goals and financial situation to help you make the best decision.

FAQs: Prefab homes

Are prefab homes worth it?

Yes, for many buyers. They provide cost savings, energy efficiency, and quicker move-in times, but whether they are worth it depends on your budget, financing options, and long-term goals.

Do prefab homes hold their value? 

Modular homes typically appreciate in value much like traditional homes. Manufactured homes may depreciate unless permanently affixed to land.

Can prefab homes be customized? 

Yes, most manufacturers allow customization of layouts, finishes, and features, similar to a stick-built home.

Are prefab homes safe? 

Prefab homes must meet state or federal building codes. Modular and panelized homes are built to the same standards as traditional homes, and manufactured homes must follow HUD safety regulations.

What is the lifespan of a prefab home? 

With proper maintenance, a modular or panelized prefab home can last as long as a conventional home, often 50 years or more. Manufactured homes may have a shorter lifespan if not properly maintained.