How Do You Get a Mortgage on a Tiny Home?

Date Published: 17 January 2022

Tiny homes are all the rage these days. With more people looking to downsize their lives, these little houses are popular among homeowners and renters alike. However, one of the biggest obstacles that many people face when trying to purchase a tiny home is how they will be able to finance it. In this post, we’ll go over some different ways you can use to make your dream come true!

Why don’t banks like mortgages on tiny homes?

Banks lend money on mortgages based on the value of the underlying security.  In other words, they know a house on a section is worth, say, $800,000 today.  They will therefore lend 80%, sometimes 90%, on these properties.  The problem with tiny houses is that they are so easy to remove.  The bank has no guarantee that the tiny home they finance today will be there tomorrow.  One large truck can remove a $50k-$200k asset from the property.

Aren’t garages easily removable?  Banks will finance them.

This is a good point.  Garages are a simple construction that could, in theory, be easily removed.  The key differences are that tiny homes are often on wheels – ie; they are made to be easily moved – whereas garages tend to be fixed to a concrete pad.  In theory, any house can be removed at any time but there is a significant hurdle to removing anything plumbed in and attached to a concrete pad.

If I attached it to a concrete pad, would the bank consider it then?

It’s still unlikely that the banks will like to fund a tiny home, even if it’s connected to a concrete pad for the same reason that banks require a 50% deposit for small apartments (under 40 square metres).  The fact is that only a small percentage of the population can live in a tiny home.  Once your family starts to grow, living in 30 square metres becomes a challenge.  This makes it hard for the bank to sell if you don’t pay your mortgage so the bank is fairly risk-averse to the whole scenario.

How do I get a mortgage for a tiny home?

There are two ways to purchase a tiny home – use the equity in your section or get a personal loan.  

How do I use the equity in my section to purchase a tiny house?

Banks will typically lend up to 80% of the value of a section that has utilities attached to it.  So if you own a section that is valued at $500,000 but only owe $300,000 (60% LVR), you could borrow another $100,000 (meaning a total mortgage of $400,000 or 80%) and purchase a tiny home.  The banks would find this acceptable because even if you removed the tiny home, you would still only owe 80% of the remaining section.

How do I get a personal loan to purchase a tiny house?

Getting a personal loan is a slightly more expensive option.  These loans are not really secured against anything so the interest rate tends to be higher (7%-9%) and the loan term is shorter (5-7 years).  Still, this is an option if the bank is not willing to give a mortgage on your section.

Can I get both a personal loan and a mortgage on my section?

Yes, this is possible.  You could borrow up to 80% on your section and get the remaining amount on a personal loan.  You will need to make the bank aware of this personal loan (specifically what the payments will be) so they can factor that into your expenses but, if you have enough income, or the loan is small enough, this shouldn’t be an issue.

Can I use the First Home Grant to purchase a tiny home?

You will need to check with your Solicitor for your exact scenario but it’s our belief that you can if you are planning to live in the tiny home.  You would receive the First Home Grant when you purchase the section and you would need to have a quote for a tiny home arranged (so that you know the total price is less than the price cap for the grant).

The problem that banks have with tiny homes – ie; that they are easily removable – will probably mean that tiny homes aren’t ever heavily favoured by the bank even if they become increasingly popular.  However, if you purchase a section and then hold on to it for a while (let it grow in value), they should always be able to lend up to a reasonably high percentage of the value of the section.  Let time grow the value of your section and that will fund your future purchase of a tiny home.

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