Much like with regular homes, many container home financing options can help us have our dream container homes soon.
Ranging from regular loans to other financing options, one of them is bound to help you finance the container home’s construction process.
With that out of the way, let’s find the financing option that meets your home design and financial capabilities below!
Also Read: Damages to Avoid/Fix Before You Buy a Used Shipping Container
Types of Container Home Financing Options
Conventional Mortgages
Conventional home loans are one of the most accessible options for financing a shipping container home, especially if the home is already built and permanently installed on land.
Because container homes are part of modular homes, many lenders treat them similarly to stick-built houses, making it possible to use a conventional loan.
To use conventional mortgages, you must fulfill the following criteria:
- The home must be on a permanent foundation with utility hookups.
- You’ll need a credit score of at least 620.
- Down payments start at 3% for first-time buyers and 5% for repeat buyers.
Pros:
Low interest rates, longer repayment terms, and the ability to use comparable modular or stick-built homes for appraisal.
Cons:
If your container home is still under construction or not permanently installed, you may not qualify for a conventional mortgage.
Some lenders may hesitate if the property is too unconventional or if there aren’t enough comparable sales in the area.
Construction Loans
If you’re building your container home from scratch, you might want to use a construction loan as your best bet.
These loans cover building costs and then convert to a traditional mortgage once construction is complete.
Be sure to meet these criteria before applying for a construction loan:
- Detailed construction plans and a contract with a licensed builder.
- Good credit score (usually 620+).
- Proof of permits, land ownership, and a clear project timeline.
Pros:
The loan allows you to pay for the entire build process, including land, materials, and labor. Better yet, you only pay interest on the amount drawn during construction.
Cons:
More paperwork, higher interest rates during construction, and stricter requirements for documentation.
Furthermore, if construction takes longer than expected, you may need to apply for an extension or refinance.
Personal Loans
Simply put, these are unsecured loans that you can use for almost any purpose, including building or buying a container home.
Out of all the options on this list, they’re best for smaller projects or when you need quick funding.
So, what do you need if you want to use this loan?
- A credit score between 610 and 640 or higher.
- Proof of income and a manageable debt-to-income ratio.
Pros:
Fast approval, no collateral required, and flexible use of funds. Great for small container homes, renovations, or additions.
Cons:
Unfortunately, personal loans have interest rates and shorter repayment terms than regular mortgages. Loan amounts are usually capped, so they may not cover larger projects.
Specialized Container Home Loans
Because modular and container homes aren’t particularly conventional, some lenders now provide specialized loans for these house types.
Unlike most home loans, these special loans are focused on the unique needs of container home buyers and may offer more flexible terms.
To use the loan, be sure to have these:
- Favorable credit score.
- Low debt-to-income and loan-to-value ratios.
- Sometimes requires working with approved builders.
Pros:
Lenders understand container home construction and can guide you through the process. They may accept non-traditional building methods and materials.
Cons:
Not as widely available as conventional loans, so terms can vary by lender. Interest rates and down payments can also be higher.
Home Equity Loans or HELOCs
You can use a home equity loan or line of credit (HELOC) to fund the construction of your container home if you already have enough equity in your current home.
Be sure to meet these requirements if you want to use HELOCs:
- Sufficient equity in your existing home.
- Good credit and a low debt-to-income ratio.
Pros:
Lower interest rates, longer repayment terms, and the ability to borrow large sums. You can use the funds for any aspect of your container home project, from land purchase to construction.
Cons:
Your primary home acts as collateral, so there’s risk if you default. If property values in the market suddenly drop, you can end up in debt more than your home’s current value.
FHA and VA Loans
For eligible buyers, FHA and VA loans can be used for container homes if the property meets certain criteria (permanent foundation, meets local codes, etc.).
Pros:
Lower down payments, more lenient credit requirements, and government backing. Even better, qualified veterans often don’t have to do down payment for this loan.
Cons:
Strict property requirements and eligibility criteria. Not all lenders are willing to finance container homes with these programs, so you’ll need to shop around.
Manufacturer or Builder Financing
Some container home manufacturers or builders offer in-house financing or partnerships with lenders. This can simplify the process, especially if you’re buying a turnkey model.
Pros:
Streamlined application, often with guidance from the builder. Sometimes available even if you have average credit.
Cons:
Interest rates may be higher than traditional loans, so always compare offers with outside lenders.
What to Prepare Before Applying
Regardless of your container home financing option, meeting the following criteria is a must across many loan types:
Credit Score and Financial Health
Lenders want to see a solid credit history. Because of that, aim for a credit score of at least 620 for most loans, but higher scores will get you better terms.
Remember to pay down debts, avoid new credit inquiries, and make all payments on time to boost your score!
Debt-to-Income Ratio (DTI)
Your DTI is your total monthly debt payments divided by your gross monthly income. Today, most lenders prefer a DTI below 35% to ensure debtors can meet their responsibilities.
To keep your DTI as low as possible, you can pay off existing debts or increase your income.
Loan-to-Value Ratio (LTV)
The LTV ratio is the loan amount divided by the appraised value of the home. A lower LTV means less risk for the lender and may help you qualify for better rates.
Construction Plans and Permits
If you’re building new, have detailed plans, permits, and a contract with a licensed builder ready.
Lenders want to see that the project is feasible and will result in a permanent, code-compliant home.
Land Ownership and Site Preparation
You’ll need to own the land or have a purchase agreement in place. Make sure the site is zoned for residential use and has access to utilities.
In some situations, some lenders may require a site inspection to become fully convinced of your loan application.
Down Payment
Often, lenders will tell you to make a down payment for the home construction financing of around 5% to 20% of the total project cost.
Because of that, you should save up some extra money in advance and factor this into your budget so that nothing goes wrong.
How to Choose the Right Financing Option
If you think you’ve met all the conditions for applying for the loan, it’s time to start the application process!
Assess Your Project
Is your container home already built, or are you starting from scratch? If it’s move-in ready, a conventional mortgage may be your best bet.
If you still have to build the container home from scratch, a construction loan or a specialized container home loan is more appropriate.
Consider Your Credit and Finances
If you have excellent credit and equity in your current home, a home equity loan or HELOC could offer the lowest rates.
However, if your credit is average, look into FHA loans or personal loans, but be mindful of higher interest rates.
Compare Lenders and Loan Terms
Shop around! If you take your time to explore various financing options, you’ll find lenders who specialize in container home financing and know exactly what to do.
When you’re shopping, don’t forget to compare interest rates, fees, down payment requirements, and repayment terms.
Work With Professionals
A mortgage broker or a lender experienced in modular and container homes can guide you through the process, help you avoid pitfalls, and find the best deal for your situation.
Plan for Contingencies
Container home projects can sometimes run into unexpected costs, so borrow a little extra if possible, or have a backup plan for covering overruns.
To keep your budget stable, build a cushion into your budget for site prep, utility hookups, or last-minute changes.
Understand the Fine Print
Once you’ve reached the final stage, read all loan documents carefully and ask questions about prepayment penalties, adjustable rates, or balloon payments.
At the same time, make sure you understand your obligations before signing so that nothing is amiss once you’ve acquired your home.
Also Read: Container Training Building and Its Uses for Emergency Services
Conclusion
In the end, picking the best and suitable container home financing option depends on your actual circumstances and what you need all along. To ensure your builder uses the best container for the home, contact Tradecorp today! With its high-quality, heavy-duty shipping containers, Tradecorp is ready to help container home builders design the best container homes on the market.
