How to Build an Eco-Friendly Prefabricated Home

Interested in building your own eco-friendly prefabricated home but have heard scary stories about it all going awry and way off budget? Have concerns about the environmental impact of conventional construction? Consider this your starting point for thinking about how to build a prefabricated tiny home or larger, family sized home that is eco-friendly. 

In this quick guide, I’ll cover the following topics as they pertain to prefabricated and custom eco-home construction:

• Putting your team in place
• Setting a budget
• Legal considerations
  • Contracts
  • Financing
  • Inspections

I’ll also offer a brief overview of the following topics and dig into each topic in a bit more depth in separate articles:

• Design 
• Materials
• Construction

Before you get started on your eco-friendly home-building journey, here are some basics to consider:

1. The cost of a prefabricated home or tiny home doesn’t include the cost of land on which to build it and not all prefab homes are ideally suited to every plot of land. Many prefab companies offer a site inspection to determine which, if any, of their standard designs will work in your space, and/or offer modifications as necessary.

2. Make sure the zoning of your land or lot allows for residential construction – work with a knowledgeable local real estate agent, architect, contractor, or local prefabricated home building company to get help with permits (some prefabs are pre-cleared!).

3. Determine whether the builder/contractor you want to use is a member of a recognized new-home warranty program. 

4. Get your financing in place before you commit to building. Home construction-to-completion loans are typically the way to go (more on this below).

5. Make sure you understand all of the potential costs involved in home building. While prefabrication is typically more straightforward and cheaper than a totally custom build, most prefabricated homes don’t include fees for hooking up services (septic, hydro, gas, water), building and occupancy permits, site-clearing, foundations, and external features not included in a prefab design (patio, stairways, driveway, landscaping, sprinklers, rainwater collection, photovoltaic, etc.). Other costs to factor in include internal upgrades (lighting, cabinetry, energy efficient appliances, etc.), and engineer fees and architect fees if you’re going seriously off-spec.

6. Add 10% as a contingency for cost overruns, unless you’re building using a pre-approved design,  have set prices for any upgrades, and are sure you won’t start changing your design part way through the process.

Now, let’s dig into some of the key aspects of building a prefabricated eco-friendly home.

Putting your team in place

Building an eco-friendly tiny home or prefabricated home requires a lot of know-how and plenty of energy. For a project of this magnitude to succeed, you’re going to need a solid team. Typically, this will include your general contractor, experienced laborers, prefab company, and maybe an engineer, inspector, real estate agent, mortgage broker, landscaper and other professionals with specific skillsets and licenses.

Before you do anything else, ask around for recommendations for a local contractor. I can’t stress this enough: Choose your contractor/builder or building company before you fall in love with a specific design. 

Talk to at least three contractors in your area and ask to see examples of projects they’ve worked on (you may be able to see homes already built and those currently under construction). Check your regional regulator, likely your State Contractor’s Board, the Better Business Bureau (BBB), and client and trade references.

The best contractors are those that not only get the job done on time and on budget but who actually care if you love your new home. That means they’ll tell you up front if your dream design just isn’t practical, and then offer alternatives that are both feasible and suited to your needs and desires. The key here is to find people with whom you communicate well. It’s also important to note how your contractor treats other people as you’ll be relying on this person to hire quality laborers and to liaise with various other members of your home-building team.

The same goes for all of the other members of your team with whom you’ll have more than a fleeting relationship. 

If you have the enviable position of a perfectly prepared lot ready for you to simply drive up and drop off a tiny home or prefabricated modular home, you can skip a lot of steps and keep your costs to a bare minimum. Still, you’re going to need to choose the company making your home, hire a local contractor to oversee the installation of your home, and work with other professionals to ensure you get all the proper permits and inspections carried out and have finances in place.

Depending on which prefab company you choose, and where they are located, you may be able to work with a contractor and laborers who have experience building and installing the exact home you plan to buy. Ask the prefab company if they have recommendations for a contractor in your area. They may even offer financial incentives if you go with their recommendation (but be sure to check the references and qualifications of anyone recommended to you).

Setting a budget

Building a new custom home, even if it is mostly or entirely prefabricated, is not quite as straightforward as purchasing a home that already exists. With a conventional purchase, you know how much you can borrow from the bank, what you have as a down payment, and can make an offer within a set range. Setting a budget to build a custom eco-home is quite a bit… messier.

This means that you need to do your research before you commit to anything. Figure out the where, what, and who of your build, i.e. the neighborhood where you want to live, the type of house (in a general sense) that will suit your needs now and in the future, and who will be involved in building it. 

The cost of an eco-home doesn’t just depend on your floor plan. Even if you’re going for an off-the-rack design with a set price and no modifications, you’ll need to factor in:

• The cost of preparing your site (including the cost of an environmental assessment)
• Whether you need to install services to site
• The cost of labor in the area you intend to build
• The type of materials you’ll be using (any eco-upgrades such as recycled insulation)
• How high-end you plan to go for materials and décor
• The brand and model of appliances
• Landscaping costs
• Add-ons such as security systems, a solar array, wind turbine, or other off-grid modifications
• Building permits, which are usually at least $1000 in most places in the U.S.

There are two main ways to approach setting a budget to build your own custom eco-friendly home, but both rely on knowing the realities of your financial situation. That means getting your financing in place so you know the maximum amount you can spend on the project. Once that’s done, you can take the ‘dream big’ approach and design your absolute dream home yourself. Run this by a contractor to get an estimate of the likely cost and, if this exceeds your maximum budget, get to work. First, figure out which elements are non-negotiable and which you can cut or add in at a later date once you have more cash on hand. If what you’re left with seems like too much of a watered-down version of your dream, you will want to go back to the drawing board.

Notice how I recommend talking to a contractor before hiring an architect? That’s because you could easily spend thousands of dollars dreaming up a gorgeous home only to have a contractor come along months into the process and point out some fatal flaws that mean scrapping most of the design. A contractor can help give you a top-down look at the project, keeping in mind what’s feasible and how much different designs and finishes cost. While two designs might look pretty similar to you, the person charged with building these can quickly spot where an extra foot in the length of a room means you’ll need an additional load-bearing wall or other element that can add thousands of dollars to the cost of a build. A contractor may also know of a good company with a similar design that can be slightly modified to your custom specifications. Which brings me to the second approach.

This approach involves listing your ‘needs’ and ‘dreams’ up front, then looking for a standard design that meets almost all your needs (and is well within budget). Once you’ve found something that fits almost perfectly, figure out the cost of the remaining ‘needs’ and see how many of those ‘dreams’ you can also incorporate on the first pass. This approach will likely give you the most bang for your buck as a prefabricated design with a few upgrades and tweaks is more cost efficient than an entirely bespoke home. Just be sure not to rebuild the Argo as you go.

One other key thing to remember is that even the smallest tweak to a design can cause huge delays and inflated costs once building is underway. In a prefabricated home where most of your home’s components are created en masse in a short period of time, there is very little flexibility once the process is underway. Everything is on a set schedule and delays caused by changes in design mean that all the contractors scheduled to commence work one after the other are also delayed and may either charge extra or become unavailable when you do end up needing them on-site. So, be sure that you sign off on the design you truly want and keep the tweaks to cosmetic things such as paint colors, which are easier to alter at the last minute.

How much does a prefabricated eco-friendly home cost?

Most companies will list estimated costs for prefabricated eco-friendly homes on a square footage basis. So, a smaller prefabricated home under 600 square feet with higher-end fixtures and fittings may cost around $200 to $350 per square foot to build in the Pacific Northwest, for a total build cost of $120,000 to $210,000 (plus the cost of your land). In states where labor is cheaper and you opt for a standard build, a similarly sized home may cost $90 to $200 per square foot, for a total cost of $54,000 to $120,000.

A larger home, say a 1500 square foot three-bedroom prefabricated or modular home may cost anywhere in the vicinity of $110 to $400 per square foot. The cost depends largely on how much you customize the design and the quality of the materials, as well as cost of labor and transport. In total, you may be looking at anywhere from $165,000 to $600,000 for a three-bedroom prefabricated or modular home. 

These examples should give you an idea of just how variable the cost can be of building your own home. Bear in mind that these estimates don’t include the cost of plumbing, electrical, and connecting to services and amenities. Some companies also don’t include the cost of transporting materials to site, and you’ll also need to account for taxes if you’re buying from a company across state or country lines.

As such, your best bet when thinking about building a prefabricated eco-home is to get a quote from several companies that specifies exactly what is included in that price. At the same time, get a quote from local contractors with experience in managing prefab builds, ensuring that you have accounted for all costs associated with the project.

Design

Designing your eco-home is arguably the most fun part of this whole process, and there are plenty of things to get excited about once you get to this stage. While every home is unique, eco-friendly homes are often built with the same key considerations in mind. For example, you will probably want to:

• Know standard industry sizes for materials (timber, insulation, piping) and design your home accordingly
• Choose a modular or prefabricated design that makes sense for your lot, slope, access, sun exposure, drainage, and other factors
• Consider if you’ll be moving your home in the future or adding to it if your family grows – how does this change your design, if at all? Will you need to qualify for different permits?
• Choose the right materials for the climate where you live, and consider how the climate may change over the coming decades
• Install a heat and/or energy recovery ventilator
• Think about your need for off-grid energy production – this may affect where you position your home on your lot and the type of land you purchase
• Make sure you know the requirements for LEED certification, Passivhaus, Net Zero, or Novoclimat qualification, if you’re aiming to have your home certified
• Choose a size and shape of home that balances up-front environmental costs with eco-friendliness of use.

For the last item in this list, I’m thinking specifically of how the traditional narrow, long, and tall design of tiny homes and other prefabricated homes can consume more materials than other shapes and make it harder to install energy-efficient appliances and use the best types of insulation.

Indeed, many tiny homes use spray foam or XPS foam board insulation because this seems like the only way to approach being somewhat energy efficient when space is at a premium. Surprisingly, even some supposedly eco-friendly prefabricated homes also use foam insulation, which is notoriously bad for the environment, being made with petrochemicals and emitting vast amounts of greenhouse gases. Yes, insulating your home well will help reduce the amount of energy you need to heat and cool it, but at what cost to the environment?

If you want to avoid using industry standard toxic insulation foam, you have two options: consider alternative designs that reduce how much insulation you might need; look for more eco-friendly insulation materials. If you choose the latter option, think about how each material responds to moisture, whether it will meet fire safety regulations, the potential hazards of working with the material in the factory or on-site, and how effective the material is at different thicknesses (this can be a big deal in a narrow tiny home). You’ll probably want to read up on R-values for insulation as different companies use different measures, which can get rather confusing. I offer a breakdown of some eco-friendly insulation options here.

Materials

It’s beyond the scope of this article to examine the relative environmental merits of different building materials such as wood, steel, and concrete. That said, several studies have been done to assess the lifecycle energy use and greenhouse gas emissions associated with various common building materials and processes.

 In summary:

• A comparison of wood, steel, and concrete office buildings found little difference in energy use across the lifecycle of a building (Cole and Kernan, 1996). Using materials that are appropriate to your design and locally sourced is your best bet for eco-friendly construction.

• Building an energy and water efficient home from scratch was found to have advantages over renovating, demolishing, and rebuilding older homes, even though demolition and renovation can reduce the use of new materials (Itard and Klunder, 2007).

• An Australian study found that it took just 12 years to pay back the embodied energy (in life-cycle terms) of adding extra insulation to a residential building to make it more energy efficient. However, this represented less than 6% of the total embodied energy and operational energy of the building over a 100-year life cycle. This suggests there may be other areas deserving of greater focus when looking to reduce energy use (R).

Beware being overly enthusiastic about repurposed and recycled materials. Sure, building an Earthship with a load of old tires pulled from landfill might seem like a great idea, but these tires may cause you to be exposed to high levels of brominated flame retardants (PDBEs), which are toxic. These kinds of materials are also often not as energy efficient as newer materials designed specifically for use in green buildings.

Tried and tested eco-friendly building processes can also help you achieve an air-tight building envelope, which is essential for keeping your energy bills low. A robust building envelope also helps to lower the risk of damp, mold, and mildew and the associated health conditions mentioned earlier.

When choosing a prefabricated home, talk to companies about the materials that come as standard in a design. Ask about optional upgrades to more eco-friendly materials. You may also want to ask if the company has worked on projects where other clients have switched out materials for more environmentally friendly options. 

As more companies catch on to the green building trend, there’s more and more greenwashing afoot, unfortunately. Don’t take a company’s marketing hype at face value; dig into the specifications to see what they actually use to build their prefabricated and modular homes. If they don’t tell you upfront, be a little wary. You are buying a home where you may live for decades. The least they can do is tell you what it’s made from.

Construction

There are various ways to support smooth, efficient, and eco-friendly construction of your home. Having a strong team and a strong design in place are key elements of a successful home-build, and there are plenty of other things you can do on-site.

For instance, to avoid using more materials than necessary and generating waste, make sure your crew doesn’t drywall over areas where windows will later be cut. 

You’ll also want to have a system set up right from the get-go to keep different waste materials sorted by type (floorboards, framing lumber, cabinetry, glass, piping). This can help you to more easily reuse scrap material should the need arise and make it easier to give away scrap at the end of the build, or to recycle materials that don’t otherwise get snapped up. Having other people come and get your scrap material, even for free, will save you money otherwise spent on scrapyard fees.

As noted above, you’ll be surprised what you can find for free on Craigslist and other listing sites and local groups. Similarly, you may be surprised what you have to give away at the end of a build. You can also plan to use clean framing lumber for other structures on your property, such as raised beds, fence posts, compost heaps, sheds, and so forth. Or, if you have a wood burning stove or a neighbor or friend who does, plan to give away or sell framing lumber cut to short lengths for fuel.

Any toxic materials or things that aren’t recyclable should be kept separate to other scrap materials and in a secure location that prevents any toxic chemicals leaching into surrounding soil or waterways. For example, when plasterboard degrades in landfill, it releases the toxic gas hydrogen sulfide. If you can, design your house so you don’t need to use plasterboard or things like XPS or EPS foam boards in the first place.

You will also want to use that great relationship you’ve built with your contractor to ensure you’re on-site at key stages of the build. That way, you can be sure that your foundation, electrical and plumbing, and other significant steps in construction are up to standard. It’s much better to spot and resolve little issues along the way than have them turn into big problems after the build is complete. 

Nobody wants to be micromanaged but being present on site at key moments during construction can ensure things are going smoothly. It’s also a good idea to check that good ‘housekeeping’ is happening on-site, meaning that materials are properly stored and disposed of and that there’s no potential for accidental waterway contamination.

Bear in mind that if you are looking to have your new home LEED certified, you’re going to need to get a report showing how much waste was generated and where it went (recycling or landfill). Make sure you’ve figured out this process in advance so you can set up a system that will make these requirements less onerous later on.

Legal considerations

Designing and building a home can be a project full of anticipation and joy. In addition to the excitement of planning your dream home, though, you have to take care of some legal requirements. For instance, you’ll need to determine the kinds of building permits you’ll need for the home you plan to build. You may have to modify your design to adhere to local bylaws. In some cases, the eco-friendly home you planned out might not be allowed in your particular jurisdiction if green building materials do not meet certain standards. Obviously, it’s good to find this out before you place any orders.

Tiny homes and laneway houses, as well as other types of prefabrication projects may well have a whole bunch of legal considerations with which the average contractor or homebuilder has never had to grapple. As such, it’s a good idea to go with a company, contractor, architect, and other professionals who have experience with the type of home you want to build, in the area in which you’ll be building. If a company has previously built an eco-friendly home using the types of materials and design you’re also planning to use, chances are that they have already overcome any legal obstacles related to permits and regulations.

Also consider the possibility that you may wish to relocate your tiny home. Are there design modifications you can make now that will make relocation easier in a few months or years?

Questions to ask before signing a contract

Signing any contract behooves you to read the fine print. If you’re forking over potentially hundreds of thousands of dollars, this is not the time to simply scroll down and push the ‘I Agree’ button without understanding everything in the contract. If you don’t understand something, ask for it to be explained in simpler terms you can understand. 

You may wish to take your contract to a real estate lawyer or agent, mortgage provider or notary who has experience in prefabricated home building. They can help you spot any possible issues. There may also be a local or state consumer protection bureau who can help acquaint you with the sorts of things you want to have in your contract, as well as your options for pursuing legal recourse and reporting construction defects should they occur.

Ask your developer the following questions:

1. What warranties do you provide (home builder and structural)? Do these have special terms and conditions? What’s the time limit on these warranties?
2. Do you offer a zero-defect guarantee? What does that actually cover?
3. What does this contract include – i.e. the scope of the work and the materials to be used?
4. Which finishes are standard and which are optional upgrades?
5. Are there any discounts on upgrades and what’s the process if you source materials yourself (such as recycled or repurposed materials)?
6. What’s the predicted timeline for the project, including key stages and completion?
7. When are payments expected for each stage? Will you work directly with a mortgage provider to release funds on a set schedule?
8. What is the process for dealing with changes once the project is underway? What are the additional costs for design tweaks, late payments, or other issues that may arise?
9. If disputes arise, what’s your process for dealing with these? How have things been resolved in previous instances?

Financing

I get it, building a home is a super fun project. But, unless you have a whole heap of ready cash at your disposal, it’s essential to figure out your mortgage and payment structure before you sign any contracts and commit to building. Many prefabricated home companies will ask for a non-refundable design deposit of around $5-10,000. It’s understandable that a company doesn’t want to invest weeks of their time designing your dream home only to find that this was a pipedream and you can’t actually carry out the project or pay them for their time.

As such, you’ll want to work out how much cash you have on hand to put down as a deposit, and what you can borrow before getting wrapped up in the type of tile backsplash you’ll have in your eco-kitchen. Chances are that you will also be paying rent or another mortgage while your home is being built. Make sure you can afford this and the scheduled payments for another loan, plus any ‘surprise’ costs that may arise during construction (such as fees for permits, service hook-ups, and such).

Most mortgage providers will offer a home-construction-to-completion loan where you lock in a rate for the whole loan upfront. This is important because mortgage rates may rise significantly while your home is being built, leaving you with much higher monthly payments than you anticipated. In the worst case scenario, you may be forced to foreclose on your dream home before you even get to live in it. So, lock in your loan rate until your home is completed. Most lenders will want you to make the first draw on this loan within 90 days of locking it in. That first draw can, in most cases, go towards buying the plot of land on which you plan to build.

Once you have your financing in place, your lender will release set amounts of the loan at specific stages during the building process. These might include completing the purchase of land, releasing funds to finance site preparation, the start of prefabrication at the factory, and delivery of the materials to site. During this time, you will typically only pay the interest portion of the amount of the loan already released. Once your home is completed, the whole loan will be released to pay your contractors and other service providers and you being paying both the interest and the principal portion of your loan.

Because many green builds are somewhat bespoke, and possibly out in the sticks, you may need to get creative about financing. Some larger mortgage providers don’t offer mortgages for construction, especially if this is in a rural area using a company without a long track record of development. In this case, you may need to look at financing your eco-home through a local credit union, or borrowing against equity in another property. Or, you may face a situation where you need to wait a little longer to save a larger down payment so you’re in a stronger position to convince the bank that you’re a wise investment.

Thankfully, for prefabricated designs and tiny homes built to a standard design, financing can be much less of a headache than a totally bespoke traditionally built home. The whole design and building process is typically much faster and more predictable, and bankers tend to like both of these things, making you look much more appealing as a borrower. Bear in mind, though, that you will probably need to put down at least 20 percent of the total cost of building and land as a deposit, otherwise you’ll probably have a higher mortgage rate and need to pay insurance as well as mortgage costs.

Inspections

There isn’t a lot of difference between eco-friendly homes and conventional homes when it comes to inspections. Anyone building their own home will want to be sure of quality construction that proceeds according to the design. However, inspections serve another purpose when building an eco-home: they help you make sure that toxic chemicals are not brought onto site and that strict environmental safeguards are in place during construction. 

If you have doubts about happenings on-site, this is the time to talk to your contractor. It may be that casual laborers are unaware of non-standard site rules and aren’t, for example, properly separating ‘waste’ materials that are to be reused in another part of the project. Open communication and regular, friendly site visits can help you avoid possible problems, including jeopardizing LEED certification.

For an eco-home, especially if you have multiple chemical sensitivities, you may want to obtain independent inspections for mold and pests, septic field, radon, and water quality. 

Custom homes, prefabricated or not, also typically require regular inspections by a professional inspector prior to every ‘draw’ on your loan. These inspections begin with an environmental assessment and end at completion when you do your walk-through to spot any lingering defects. You will also want to inspect your home in the first few months and at set intervals according to your Builder’s or Home Warranty.

That’s it! You’re ready to buy your prefab tiny home!

Well, sort of.

This guide is a good place to start, but there are many more things to think about before signing on the dotted line. The good news is that researching your dream home is a lot of fun and while you research you can keep saving towards that down payment. 

For more inspiration, check out my tips for designing an eco-friendly prefabricated eco-friendly home.