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 84 months (7 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.