While buying a tiny home is similar to purchasing a traditional one, there are some unique issues you may run into during the process. One of those is the fact that you may have trouble obtaining bank financing for the property. Here's the reason why that is and what you can do to overcome the issue.
Tiny Home Aren't Considered Homes
The primary reason banks may hesitate to issue loans on tiny properties is because the homes aren't classified as houses. Due to their size and design—usually between 100 and 400 square feet—these houses are actually classified as manufactured homes (houses that can be made in a factory and transported to the final destination). If the tiny home is placed on a trailer, thus making it mobile, it is considered a recreational vehicle.
Because it is believed tiny homes can be relocated at any time, banks are hesitant to finance these types of houses. A home's immovability is one of the reasons banks are willing to finance the hundreds of thousands of dollars it costs to buy them. If the collateral can up and disappear at any time, the bank isn't going to be so willing to issue a mortgage on it.
Thus, you may experience a barrage of rejections when shopping around for a loan to finance your tiny home purchase. However, there are a few things you can to do get around this issue.
Getting Financing for a Tiny Home
If you're set on obtaining a traditional mortgage for your tiny home, one thing you can do is make sure the residence is built on the property just like a regular-sized house. This means purchasing property for sale and building the structure directly on it, according to local building codes and regulations. This can give the structure the air of permanency that may make a bank more comfortable underwriting a loan.
For those who are looking to build or buy tiny homes on trailers so they are mobile, the alternative is to apply for a personal loan to cover the cost. While no collateral is required to secure these loans, you generally must have good credit and a steady source of verifiable income to qualify. Additionally, you may be limited in the amount of money you receive (e.g. the bank will only approve a $25,000 loan) depending on your qualifications. If the home already exists, you may be able to get more money by applying for a recreational vehicle loan where the home is treated like an RV and used to secure the note.
There may be other ways to get a bank to finance your tiny home purchase. For assistance with this issue or help locating tiny homes that fit your needs, contact a real estate agent.