Your Guide to Modular Home Loans.
Are you planning a Granny Flat addition, a Tiny Home or a full Modular Build? Whether you’re expanding your family’s footprint, creating an Airbnb income stream, or finally claiming your own space, kit homes and modular dwellings unlock a world of possibilities.
When it comes to finance, not every lender plays by the same rulebook — and that’s where smart preparation (and a savvy broker) makes all the difference.
Why Financing a Modular Home Isn’t Just Another Mortgage.
Purpose classification:
- Banks may classify your loan as new lending for a personal purpose or as a construction loan with added value, each with its own conditions.
- Staged Payments:
- Many modular builds release funds at factory milestones. You’ll need to match your deposit timing to the builder’s drawdown schedules.
- Site-Prep Costs:
- Don’t forget council approvals, site works, and delivery fees — they can add up quickly if not budgeted for.
Tip: Document every line item up front. Clear numbers help avoid bill shock and unexpected costs later.
Who Can Benefit from Modular Home Financing?
Financing a modular home, granny flat, or tiny home can open the door to more space, greater flexibility, and even long-term income. Whether you’re planning a backyard build or exploring relocatable homes for a regional property, there are many people who can benefit from the right finance solution:
- Parents adding space for grandparents or children
A granny flat for sale or custom-built modular extension can provide privacy for ageing parents or independence for growing kids — without leaving the family home. - Homeowners seeking rental income or extra space
A tiny home for sale, modular studio, or relocatable home can serve as a guest suite, Airbnb, or long-term rental. These options are ideal for boosting your property value and generating extra income.
Case Study: Using a Granny Flat to Support Family and Save on Costs
Meet Gavin and Wendy
Gavin and Wendy both work full-time and have two children aged 5 and 7. Because of their work schedules, they rely on after-school care, which adds to their overall cost of living.
While their parents are happy to help, travel and transport limitations make it difficult for them to be available regularly.
Gavin and Wendy own a property with enough space to build and have available equity in their home. They’re now considering adding a granny flat for their parents to live in. This would make it easier for the grandparents to spend time with the children and help with school pickups — reducing the need for paid care.
In the short term, this would ease the family’s weekly expenses and improve work-life balance. In the long term, the addition of a self-contained granny flat would increase the property’s value and provide the option to rent it out for extra income down the track.
Choosing the Right Build Type for Your Goals
When planning your project, it’s important to define what kind of dwelling you’re financing.
Each option suits different needs, and the purpose of your build can impact both your design and loan structure.
Here are some of the most common build types:
Granny Flats: Ideal for multigenerational living, independent space for older children, or creating a self-contained rental opportunity in your backyard.
Tiny Homes: A cost-effective and flexible option for downsizing, off-grid living, or starting an Airbnb income stream. Tiny homes are often relocatable, making them perfect for semi-permanent use.
Modular Builds: These full-scale prefabricated homes are built in a factory and delivered to your site. They offer fast build times and are well-suited for rural or regional properties, family homes, or secondary dwellings.
Accessory Dwellings (e.g., studios or home offices): Compact builds like backyard studios, hobby spaces, or work-from-home setups are increasingly popular for boosting property value and everyday functionality.
Use this list to identify which type of modular home or relocatable dwelling aligns with your goals — whether that’s rental income, multigenerational living, or simply creating more space at home
Understanding How Purpose Affects Finance Options
Once you’ve defined your build type, the next step is understanding how your purpose affects your financing options. Lenders look closely at your loan-to-value ratio (LVR) — the percentage of your loan compared to the total value of your property (and improvements).
Depending on your equity position and the value of the build, you’ll usually fall into one of the three scenarios below:
1. You Stay Under 80% LVR
You have enough equity or deposit to borrow funds while keeping your LVR below 80%.
This is the easiest path to approval, usually without Lenders Mortgage Insurance (LMI) and with access to standard interest rates.
Use the Post-Build Property Value to Stay Under 80%
Your current equity may not be enough, but the expected increase in your property’s value after the granny flat, modular build, or tiny home is added helps you stay within 80% LVR.
This option requires a valuer to assess the “as if complete” value of your home and may involve a construction load or progress payments.
You Go Over 80% LVR
If the borrowing amount pushes your LVR above 80%, lenders will usually apply LMI (Lenders Mortgage Insurance) and may offer less favourable interest rates.
This is typically a higher-risk option and should be approached carefully. It may still be suitable if the project delivers strong long-term value.
Financing Scenario Examples
| Financing Scenario | Loan Structure Example | Outcome & Key Points |
| Remaining Under 80% LVR | Existing property value: $1,000,000
Existing mortgage: $500,000 New lending: $200,000 Final loan amount: $700,000 (70% LVR) |
– Qualifies for standard interest rates
– Easiest approval due to lower risk – Best if equity is sufficient |
| Use Improved Value to Stay Under 80% | Existing property value: $1,000,000
Existing mortgage: $700,000 New lending: $200,000 New property value (post-build): $1,200,000 Final loan amount: $900,000 (80% LVR) |
– Loan remains under 80% LVR using post-renovation value
– May require “as-if-complete” valuation – Often used with construction loan structures |
| Exceeding 80% LVR | Existing property value: $1,000,000
Existing mortgage: $700,000 New lending: $200,000 Final loan amount: $900,000 (90% LVR) |
– LMI (Lenders Mortgage Insurance) required
– Likely higher interest rates – More complex approval process and tighter lending criteria |
TIP: A broker will help you identify the best loan structure for your short, medium, and long-term goals — and find the lender who can move the fastest with the most favourable terms.
Your Finance Journey: 5 Clear Steps to Secure Modular Home Funding
Navigating modular home finance doesn’t have to be overwhelming. Whether you’re financing a granny flat, tiny home, or full modular build, here are five key steps to guide you through the process:
1. Define Your Purpose
Be clear about what you’re trying to achieve. Are you adding a granny flat for multigenerational living? Installing a tiny home for rental income? Or building a modular home to live in? Defining your purpose will help shape the rest of your finance strategy.
2. Check Your Eligibility
Understand your borrowing capacity by reviewing your income, expenses, and existing equity. This will help determine how much you can borrow and what types of modular homes or relocatable dwellings fit within your budget.
3. Identify the Right Lender
Not all lenders offer flexible options for modular or container homes. Work with a broker who can match your goal with a lender that supports your equity position, project type, and repayment structure.
4. Understand Loan Structuring
Modular builds are often financed differently than traditional homes. Some lenders may offer cashout loans, while others prefer progress payments tied to factory milestones. Knowing your preferred loan structure upfront can help avoid approval delays.
5. Get Pre-Approved and Plan Ahead
Once you’ve identified a lender and confirmed your loan amount, get pre-approval before committing to a builder or signing contracts. This reduces stress, prevents delays, and keeps your modular build moving forward.
Quick Tips & Things to Note for Modular Home Finance
Before you lock in your finance, here are a few practical things to keep in mind — especially when funding granny flats, modular homes, tiny homes, or relocatable buildings.
Tips for a Smoother Loan Process
- Factor in all costs — and include a buffer
Don’t just budget for the build. Include delivery, site prep, connection services, approvals, and a buffer for unexpected expenses. - Consider council approval costs
Some builds (especially granny flats and accessory dwellings) may require development approval or planning permits, which can add time and cost. - Ask your broker to compare lender policies on equity
Not all lenders assess your existing equity the same way. A broker can help find one that’s most favourable to your situation, especially for modular home loans. - If rental income is part of your plan, optimise for borrowing power
If you plan to rent your tiny home or granny flat (short-term or long-term), make sure the lender you’re considering will include a fair portion of that projected income in your borrowing capacity.
Things to Watch Out For
- Progress payments follow strict timelines
With construction loans, progress payments are only released after work is completed and invoices are submitted. Funds won’t be released in advance, so timing and communication with your builder is essential. - Vacant land can limit borrowing
Some lenders place stricter limits on loan-to-value ratios (LVRs) for properties without existing dwellings. Make sure to check this if you’re building from scratch on bare land. - Not all lenders accept high rental yield figures
If your proposed rental return is high (e.g. Airbnb income from a tiny home), some lenders may cap how much of that income they accept in their calculations — which can affect your borrowing capacity.
Get Expert Help with Modular Home Finance
As demand for modular homes, granny flats, and tiny homes continues to grow, more lenders are adjusting their policies to suit these modern living solutions. That said, not all banks treat them the same — and navigating the fine print can be overwhelming.
Working with a mortgage broker gives you access to the right lenders, tailored advice, and a clearer path forward. They can help you cut through the jargon, compare the most suitable lending options, and save you hours of research in the process.
If your ideal outcome isn’t immediately achievable — for example, if you’re short on equity or uncertain about your borrowing power — a broker can provide a realistic roadmap. Whether you’re pursuing granny flat finance, exploring tiny home lending, or applying for a modular construction loan, expert guidance can make all the difference in reaching your goals sooner.
Need help from a mortgage expert?
Get in touch with the broker behind this guide:
Jonny Lennard
Director & Broker | JL Mortgage Services
Whether you’re ready to build or just exploring your options, Jonny can walk you through the best path for your modular home finance.