Tiny Home Financing for First-Time Home Buyers
You thought your college apartment was tiny -- that is, until you started seeing tiny homes pop up everywhere. They make that apartment look like a mansion by comparison. Even so, now that every trendy HGTV host has done a piece on these tiny, efficient palaces, you may be thinking that tiny living isn’t such a bad idea. After all, these houses don’t cost much, being little more than incredibly fancy sheds, and with what you’re paying on your student loans, a smaller housing payment looks pretty good right now.
Just how do you finance a tiny house, anyway?
Tiny Homes: A Few Basic Definitions
Tiny homes straddle the line between personal property and real estate, depending on the method of construction and attachment. These distinctions are very important because they affect how banks will approach a purchase.
Personal property is anything that you own and can move around. This includes your lamp, your couch, your car and, sometimes, your tiny home. When a tiny home is built directly on the ground, on cement blocks or on a trailer, you can generally assume that it’s legally considered personal property.
On the other hand, a tiny home attached to a tiny foundation, be that a slab, a crawlspace or a tiny basement, is real estate. That house is permanently affixed to that piece of land, more or less. This gives it not only the opportunity to obtain an upgraded legal status, it often gets a parcel number, a legal description, title and a tax assessment.
Because a tiny house can go either way, you may hit a lot of roadblocks trying to finance one. You may believe that your house is securely attached to the land, but your appraiser and lender may disagree. Or you may find that no lenders in your area will loan on real estate valued below a certain threshold. It’s a pickle, to be sure.
Tiny Home Financing Options
Depending on whether your tiny home is considered real estate or personal property, you have some different lending options. A tiny home that’s real estate and has met local building codes on its own (rather than having been built in your best friend’s backyard as an accessory building, for example), may be able to qualify for a traditional mortgage through FHA, VA or even Fannie Mae if it’s not super small. These programs do have minimum definitions for what a house is and is not.
Tiny homes that are considered personal property, on the other hand, can be financed a few different ways. Keep in mind that these loans may carry much higher interest rates and shorter terms, so the payment could still be prohibitive, despite the tininess of the whole situation. Look into these options first:
FHA Mobile Home Loan
In theory, you can borrow to buy a tiny home if it’s treated like a mobile home for lending purposes. FHA insures loans for home and land combination purchases, home-only purchases and land-only purchases (assuming the intent is to plunk your tiny house on it). In practice, it can be really difficult to even find someone who will write these loans, let alone qualify for one.
Now we’re talking. If your tiny little home has wheels and is certified by the Recreation Vehicle Industry Association, you may be able to get an RV loan to cover the expense. These loans have higher-than-mortgage rates, but they’re not terrible, often capping out around 8% with terms as long as 84 months, depending on how well you’re doing in the credit department.
With really good credit, you can also take out an unsecured loan from your bank or credit union. This money is completely untethered from your tiny home, so the rate will be higher, but you also don’t put your home at risk if something were to go terribly wrong in your financial life. Understand that this loan will be expensive compared to others and possibly have a shorter term since the only guarantee your bank has that you’ll pay it back is your word.
More tiny home construction artists are financing their work so people like you can hop into the tiny house market. Ask your distributor about financing that may be available and how much you’ll need to put down to secure it. This can be a great option, since you get everything you need in one spot, saving time and a potentially enormous headache from having financial doors slammed in your face all day.
Wanna Get Tiny?
Looking for help financing your tiniest dreams? It just so happens that we know a guy (who happens to be us). We have some great options for financing your tiny home, whether it’s real estate or personal property. Contact us here at Home.Loans and we’ll help you find the little loan that’s perfect for your itsy-bitsy lifestyle.