SIP Kit Homes Qualify for Conventional Mortgage Financing

If you've considered purchasing and building a prefab Structural Insulated Panel (SIP) kit home, yet worry that the completed home wouldn't qualify for conventional mortgages, your ideas about financing may be outdated. 

Since 2000, Fannie Mae, the government-sponsored entity that buys residential mortgages from lenders, has recognized SIP homes as qualified for conventional financing.

There are lots of factors to consider when evaluating your build costs and financing options. Here we will explain the prefab SIP home building system, walk you through the financing process, explain loan requirements, and show you how we can help make your dream home a reality.

The SIP Home Solution

At a time when the housing market is tight, prefab SIP kit homes offer an innovative solution for first-time buyers and downsizers. 

SIP homes can be built faster than traditional construction and require less skilled labor since there's no on-site framing.

They're also energy-efficient and support sustainability, making them a forward-thinking choice for today's home buyers.

Prefab homes are built in an off-site factory, which produces a higher building quality, and then are transported to your site for assembly.

While financing a kit home may seem challenging, there are plenty of options to make it achievable. The most common option is a conventional mortgage backed by Fannie Mae, which offers affordable, long-term financing options. This overview walks you through the financing process, explains loan requirements, and helps you take the first steps toward building your dream home.

Fannie Mae's programs have made homeownership more accessible by offering long-term, low-interest mortgages, giving middle-class families a better chance to own a home, and shaping the housing market we know today.

However, traditional mortgages weren't always an option for prefabricated kit homes—so Fannie Mae's recent support for these homes is a real game-changer.

Satisfying Quality Concerns for Lenders and Underwriters

A kit (or prefab home) is a house made from pre-manufactured parts that are delivered to the site and assembled on the buyer's lot. 

Since this is considered "non-traditional construction," securing mortgage financing may feel more complicated, or lenders may view it as unconventional. This means they may have specific underwriting policies that don't apply to traditional stick-frame homes.

A traditional or stick-built home is constructed on-site using lumber and other materials. It is the most common type of housing offered in the U.S., so financing requirements have largely reflected the market and risks of lending for these homes. 

Mighty Small Homes Check All the Boxes for Quality and Value

While Fannie Mae classifies SIP kit homes as non-traditional construction, there are guidelines for underwriting. 

What you need to know

• Appraisal Requirements: SIP kit homes must be appraised by a qualified appraiser who considers the home's quality and features, as well as comparable sales in the area.
• Local Building Codes: Home must comply with the local building codes in the area where it will be built.
• Comparable Sales: When selecting comparable sales for appraisal, Fannie Mae does not require that the comps be the same type of factory-built housing, but using similar types of homes can enhance the reliability of the appraisal.
• Eligibility Requirements: Prefab kit homes must meet specific eligibility requirements, including compliance with local building codes and proper documentation.

Mighty Small Homes meet these requirements, making them eligible for financing under Fannie Mae's guidelines. This allows borrowers to use flexible mortgage options when adding or purchasing an ADU built with SIPs construction.

Acquiring Construction Loans for SIP Kit Homes

Unlike financing the purchase of an existing home, building a home adds another layer to the financing process, whether it is a SIPs kit home or a traditional stick-built home. Fannie Mae developed two financing products to help with this.

These options address the potential need for construction loans, which allow access to funding during the building phase. 

• A Single-Closing Construction-to-Permanent loan (C-to-P) lets lenders approve and close both a construction loan and a mortgage loan in one step, using a single set of closing documents.

  • Simplified and More Affordable

  • Lower costs - Borrowers pay only one closing and can lock in their mortgage interest rate upfront. If rates drop during construction, they can adjust when the loan becomes a mortgage.
  • Less hassle - Only one appointment is needed to sign the construction and mortgage loan paperwork.
  • More flexibility - C-to-P loans work for various home types, including site-built and manufactured homes.
• A Two-Closing loan is used when a borrower already has a home construction loan and needs to convert it into a mortgage. The original construction loan can be from any lender, and the borrower will go through two closings—one for construction and another for the mortgage. This option lets borrowers shop for the best construction loan terms without committing to a mortgage lender upfront.

Not Just Primary Homes: The ADU Option

Adding an Accessory Dwelling Unit (ADU) to a property can increase the home's value, provide space for extended family, or generate additional income, all while helping address the country's affordable housing shortage. 

Fannie Mae can help borrowers add, build, or buy an ADU.

What qualifies as an ADU?

An ADU is a smaller, independent living space on the same lot as a single-family home. It must include a living area, bedroom, kitchen, and bathroom.

While an ADU may connect to the main home, it must also have a separate entrance and provide privacy from the primary residence. 

Types of ADUs

Detached ADUs
These units are entirely separate structures on the same lot as the main home. They offer the highest level of privacy and can vary in size from small studios to full guest houses.

Interior ADUs
These units are created within the main home's existing structure. They are often the most cost-effective option because they repurpose space without major construction.

Attached ADUs
These units are physically connected to the main home but have separate entrances and living areas. They often share a wall, roof, or foundation.

Enter Fannie Mae

Fannie Mae, or the Federal National Mortgage Association (FNMA), is a government-sponsored enterprise created in 1938. 

Its mission is to make homeownership more affordable and accessible.

Fannie Mae doesn't lend money directly to buyers but works in the secondary mortgage market.

Fannie Mae's Role in the Mortgage Industry

• Purchasing Mortgages: Fannie Mae buys loans from banks and other lenders, freeing up capital for those institutions to issue more loans.
• Setting Standards: It establishes lending standards for loans it's willing to buy, such as credit score requirements and loan limits.
• Reducing Risk: Fannie Mae bundles mortgages into mortgage-backed securities (MBS), which are sold to investors, reducing lenders' financial risk.

Securing a Fannie Mae-backed Home Loan

A conventional mortgage is offered by private lenders, such as banks, mortgage companies, or credit unions, and it follows rules set by private lenders such as Fannie Mae.

Fannie Mae purchases and guarantees these loans, helping reduce lenders' risks and keeping rates more affordable for borrowers. 

Unlike the Federal Housing Administration (FHA), the United States Department of Agriculture (USDA), and Veterans Affairs (VA) loans, these loans are not backed by the government.

Key Considerations for Conventional Mortgages

There are certain requirements and limitations to consider when evaluating your options for a conventional loan on your new SIP kit home:

1. Loan Limits: Conventional mortgages are subject to satisfying loan limits set by the Federal Housing Finance Agency (FHFA). For 2025, the standard limit is $726,000 in most areas, with higher limits in high-cost regions.
2. Down Payment: Borrowers typically need at least 3% to 20% as a down payment. A lower downpayment usually requires mortgage insurance until the borrower has 20% equity in the home.
3. Credit Requirements: Conventional loans often require higher credit scores than government-backed loans. An average minimum score of 620 is acceptable, but a higher score can secure better rates.
4. Property Types: These loans can finance various property types, including single-family homes, condos, and modular homes, as long as the property meets the lender's requirements.
5. Interest Rates: Interest rates for conventional mortgages can be fixed or adjustable.

Qualifying for a Conventional Home Loan

What You Need to Know

• Credit Scores: Most Fannie Mae loans require a minimum credit score of 620, but a credit score of 700 or higher unlocks better rates and terms.
• Down Payment: Depending on the loan type, down payments can range from 3% to 20%. Programs like HomeReady make it easier to put down less while securing favorable terms.
• Income: Lenders evaluate your debt-to-income ratio (DTI), which generally needs to be below 43% to qualify.
• Loan Limits: Fannie Mae sets borrowing limits, which vary based on location. For 2025, the baseline limit is $726,200, with higher limits in certain high-cost areas.
• Property Requirements: To qualify under Fannie Mae's guidelines, homes must meet local building codes, be permanently affixed to a foundation, and resemble traditional site-built homes.

Assistance Programs and Alternatives to Conventional Loans

If Fannie Mae's options don't fit your situation, there are other paths to consider.

• FHA Loans: Require lower credit scores and as little as 3.5% down.
• VA Loans: Offer zero down payment for eligible veterans and active-duty military.
• USDA Loans: Provide zero down payment for homes in rural areas.
• Jumbo Loans: They often have stricter requirements for loans exceeding standard limits.

Additionally, grant programs like CalHFA offer support with down payments and closing costs, helping to make homeownership attainable.

When financing a modular or kit home, research lenders experienced with non-traditional construction. Compare interest rates, loan terms, and repayment plans to ensure your choice aligns with your long-term goals.

Prefabricated Kits Open Homeownership to DIYers

Fannie Mae's support for prefabricated homes has made financing easier, more affordable, and less risky than ever before if you are willing to build your new home yourself.

Whether you choose a HomeReady loan, a HomeStyle Renovation loan, or another option, you have the tools to turn your dream into reality.

Explore your options and available SIP kits from Mighty Small Homes today. We're ready to help.

If you don’t see the answer to your question, contact us.