Can you afford to finance a tiny home?

The dream of homeownership has taken on a new meaning for many Americans struggling to afford traditional housing.  

The latest Case-Shiller report indicated that home prices increased two to three times the rate of inflation across the U.S. Furthermore, renting reached an all-time high nationwide.

As more and more people buckle under the weight of mortgage and rental rates, alternative housing has become a viable option.

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Specifically, tiny homes have piqued the interest of those wanting to ditch the picket fence and fat loan.

But how exactly affordable is a tiny home? In an article for HuffPost, Casey Bond highlights some factors that could determine the likeliness of moving into a home the size of a shed.

If you wanted to use a mortgage loan to finance a tiny home, unfortunately there is no way to appraise the property, according to Bond.

From the article:

Tiny homes differ from traditional homes in ways beyond just size. And those differences can make it tough to appraise the property ― a key step in mortgage underwriting.

“The appraisal is based largely on square footage,” explained Corey Vandenberg, a mortgage banker in Lafayette, Indiana. He said that often, there is a minimum square foot requirement to get a mortgage.

Further, said Vandenberg, lenders evaluate comparable properties sold within the previous 12 months. Since tiny homes are still a pretty new trend, there may not be enough data for your neighborhood. “This is particularly a challenge in rural areas,” said Vanderberg.

Even if by some chance the tiny home was appraised, it still would not qualify for a loan because of its mobility. Simply put: If you don’t own the land underneath your home, you won’t be getting any help from a bank.

“That makes it a mobile home or a titled trailer, not a permanent foundation-affixed home, which a mortgage requires,” explained Vandenberg. “Even if your tiny home is sans wheels, you’d need to own the land underneath it to potentially qualify for a traditional mortgage.”

Lastly, if someone wanted a professionally pre-made tiny home, the loan cost would be much too large for a bank to approve, according to the article.

Whether a potential buyer is looking to rent or buy, they will probably be digging a little deeper into their pocket books.

Source: Huffpost