Tiny Tuesday: Finance Your Dream

Last week  I wrote about luxury tiny houses. Today’s article is for the other 99%.

The term “homeowner” is misleading. For most people, the only way to buy a house is to go deeply into debt, and then spend 15 to 30 years paying off a mortgage (if you even keep the house that long). According to this article on fivethirtyeight, only 1 in 3 owner-occupied homes in the US is mortgage-free.

Accessible mortgages are a good thing – they enable a far larger population to own homes – until many people find themselves incapable of paying off the loan. This fact basically caused the world economy to collapse in 2008, leading folks like Ryan Mitchell to pursue alternative living options. I covered Ryan’s story in a previous post, and I don’t have to point out the economics of buying a tiny house versus a conventional-size one. Can somebody who doesn’t qualify to buy a regular house get a mortgage for a tiny house?

Unfortunately, no. Ryan returns in this USA Today article explaining that, for many small houses, the options available to big house buyers simply don’t exist. Lenders set a minimum principal for their mortgages, and properties on wheels are often excluded. If a low-principal mortgage does exist, it’s likely to have a high interest rate. The reason for the rate is actuarial – most houses worth under $50,000 are manufactured homes, and manufactured home owners tend to have a less stable source of income, making them risky loans for the lender. (Remember, it was a glut of precarious mortgages that brought the Great Recession.)

Other options exist. If you are building your tiny house from scratch, instead of buying one that’s already built, you might get a builder’s loan. Or you can get a personal or unsecured loan which lacks the collateral of the house, making it even riskier for the bank and carrying an even higher interest rate. The USA Today article names a few lenders that cater to small houses and provides sample quotes. It’s useful information for the would-be homeowner.

Thanks to Peter Roth.

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