Getting a mortgage on a tiny house presents a unique set of challenges that make the process stand out from traditional homes. Before you get turned away by your neighborhood bank, here are a few of the things you need to know ahead of time. These tips will help walk you through the financing process with as few speed bumps as possible.
Minimum Mortgage Requirements
Before you even think about submitting a mortgage application at your nearest bank, there are a few things that you need to understand. Banks have set strict limits for what type of homes do and do not qualify for traditional mortgage loans. For instance, the home must be on a permanent foundation. This can mean immediate denial if you want your tiny home to be moveable or built on a trailer of some kind. However, if you do plan on having a stationary home you may still qualify.
In addition, most mortgage companies only deal in loans greater than $50,000. Anything less than this amount typically needs to be done through a personal loan or some other loan product. Even investors who buy cheap houses cannot finance them using a traditional mortgage loan. The biggest difference is that mortgage loans are longer term and offer lower interest rates than other loans, so you may be looking at higher payments for less home, at least in the beginning. Of course, some of the most luxury tiny homes built on waterfront lots do meet the minimum of $50,000 and beyond, so it really depends on what you envision your tiny house looking like.
If you are purchasing a tiny home that was previously built on-site, you will likely have to contend with the appraisal process. An appraiser is looking at the value of the home according to its size, build quality, land and any comparable properties that have sold in the area. Getting a tiny home to meet an appraisal will require plenty of due diligence on your part.
Other Financing Options
In general, fans of tiny homes prefer cheaper, DIY type options that will not be covered by traditional mortgages. This requires turning to a different type of lender for financing. For those who want a mobile-friendly solution, RV lenders hold the most promise. Their loans tend to come with a longer term like a mortgage, usually 10-15 years in length. In addition, they specialize in products that are designed for both living and moving around. These loans come at a slightly higher interest rate than a 30 year mortgage, but at a lower interest rate than a personal loan. In addition, they can be secured using the tiny home so they aren’t as risky or costly as an unsecured loan. You can expect to put 15-20% down, so you’ll want to make sure you have a bit of savings set aside, but this number can vary greatly depending on how much you plan on spending on your total build.
Another perk to an RV loan is that there are a number of tiny house builders who now offer modular kits that come certified for RV lenders. This means that they meet all of the manufacturing standards that an RV builder would follow, and makes it even easier to qualify with an RV lender.
Lastly, there are some independent lenders who are entering the tiny house fray as the trend has grown. These lenders operate under their own guidelines so you’ll have to research each one independently to see what information they need and whether or not their rates are competitive.
Now that you understand the many layers of tiny house mortgages, you should have the tools you need to plan out your tiny home build. Depending on the type of house you plan on having, you should narrow down your loan search to those companies that specialize most closely to your needs.