Tiny House Financing – What You Need to Know
Written by Jason Nelson on October 24, 2018
Purchasing a Tiny House has many advantages. Move-in ready, Smaller space providing less maintenance, and price – as compared to a traditional dwelling – are why some people are finding this to be an attractive alternative.
But that lower purchase price also presents some challenges – financing. Most lenders have a minimum loan amount. Tiny House generally fall well under lender’s minimum loan amounts. Fannie Mae, and Freddie Mac also have minimum square footage requirements and define these homes as “Manufactured Housing”.
As with any Manufactured Housing, Tiny Houses present some other challenges. They must be permanently “affixed” to the property. A permanent “foundation” is required and must meet the Tiny House Manufacture requirements. Those requirements will depend on the size of the Tiny House. Wheels, axles and towing tongue must be removed. THAT makes it permanent. Once in it’s permanent place, a structural engineer certification is also required to confirm.
Once the foundation requirements are met, mortgage companies require that the land be included in the financing. It all must be deeded together as one unit – immovable house and property – just like traditional housing. No mortgage lender provides financing on the Tiny House alone. In addition, the land must be free of other mortgages and encumbrances at the time of the closing on your mortgage.
A Residential Appraisal is more than just one person’s opinion. The appraiser, assigned by the lender, is State Certified and bound by law to “value” the property based on state regulated guidelines. The process of appraisal begins with a site inspection (not to be confused with home inspection). The appraiser will assess the quality of constructions, and any up-grades that may exist. The land will be inspected for issues like flooding that could affect its value. Appraiser will also confirm that water, electric and sewer are in place and functioning.
Once the appraiser has visited the site, he or she then has something to “compare” to other properties. Comparable sales within the previous 6 months, and within a close proximity are used to help determine the final value. Why is that important? It’s important because the sales price of a similar property in the last 6 months is realistically what yours would sell for on the open market. Comparable sales over 6 months and too far away from the subject property are of no value in the appraisal process since the real estate market from one area to another are so diverse. What a comp sold for last year might be of lesser or greater value of what it would sell for this year because of changes in the market.
Now you know the basics. Tiny Housing can be a great alternative. Your mortgage lender will be able to provide more information on qualifying for these and any other housing options.