Have you decided to take a step towards owning a tiny home? You’re joining a growing community of people stepping away from more traditional housing options and looking at more affordable alternatives.
But when it comes to financing a tiny home, there can be a few more factors that you need to consider that you may not need to if you were financing the purchase of a traditional home.
But first – why buy a tiny home?
Why Buy a Tiny Home?
There are plenty of reasons people buy tiny homes, and the decision is often influenced by a combination of personal preferences and practical considerations. Budget and cost are big influences, as is that need to get out of the rental market and own your own home.
Tiny homes are typically less expensive than traditional houses, making them an affordable housing option. This can free up finances for other endeavours, such as travel, retirement savings, or reducing debt.
These homes also often have a smaller ecological footprint. They consume less energy, produce fewer emissions, and use fewer resources, making them an attractive choice for people concerned about environmental sustainability.
Many are now embracing minimalism and tiny homes encourage a minimalist lifestyle. They force you to declutter and prioritise what’s truly important, which can lead to a simpler and less stressful way of life.
In a market where rental costs are going up, and it is getting harder to find a rental, owning a tiny home can be a way to escape the cycle of renting and gain some stability in housing costs.
It’s important to note that tiny living is not for everyone, and there are challenges, such as limited space, potential zoning and legal issues, and the need to adjust to a different lifestyle. If you are considering a tiny home, you should carefully consider your motivations and needs before purchasing.
What Makes Tiny Homes a More Affordable Living Option?
The main thing that makes tiny homes a more affordable living option is the significantly lower initial cost compared to traditional houses. The price of a tiny home can vary, but it is generally much less expensive. This makes it accessible to a broader range of people, including those who may not be able to afford a conventional home.
Because these homes are smaller, the cost for utility bills, maintenance and insurance is often much less.
One of the big benefits to living in a tiny home is that you will save money on those things that normally clutter up your home – furniture, decor and knick knacks.
Financing the Purchase of a Tiny Home
Getting finance for a tiny home can be difficult because of the smaller size, and to qualify for a home loan, there are often extensive criteria you need to meet.
According to Lendi, the below is what you need to keep in mind:
- The home must be fixed and not portable.
- Each bank will treat tiny homes differently, and many don’t currently have clear guidelines or lending criteria for tiny homes.
- If you are building from new, the lender will generally require a fixed price building contract, plans and a valuation to consider if they will lend.
- If you have equity in land or other property, you may be able to borrow against this to finance a tiny home build.
- Due to resale value, some lenders don’t offer loans for properties of less than 50 square metres due to limited resale potential.
While in the process of looking for tiny homes, you may want to consider talking to a broker who could assist you in finding the right finance option for your needs.
Types of Finance for Tiny Homes
While you may find that getting finance requires jumping through a lot more hoops, it is still possible – it just may not be a traditional home loan that you get.
Some common options for financing a tiny home in Perth include:
Personal Loan: You may be able to apply for a personal loan from a bank, credit union, or online lender to finance your tiny home. Personal loans are unsecured loans, meaning you don’t need to use your tiny home as collateral. The terms and interest rates will vary based on your creditworthiness and the lender.
Secured Loan: If your tiny home is on wheels and qualifies as a caravan or movable dwelling, you might be able to secure a loan with the tiny home as collateral. This could result in better loan terms but also carries the risk of repossession if you fail to make payments.
Caravan Loan: Some lenders may be able to offer you a caravan loan specifically for movable tiny homes that meet certain criteria. These loans are designed for financing tiny homes on wheels.
Construction Loan: If you plan to build a fixed-location tiny home, you may be able to obtain a construction loan to cover the cost of building or purchasing the structure.
Home Loan (Mortgage): In some cases, if your tiny home is permanently fixed to a piece of land and meets certain size and construction standards, you might be eligible for a traditional home loan (mortgage). However, this option is less common for tiny homes.
Peer-to-Peer Lending: Explore peer-to-peer lending platforms where individuals or investors may be willing to fund your tiny home project in exchange for interest on the loan.
When seeking a loan for a tiny home in Australia, you need to consider that your credit score and financial history will impact your ability to secure a loan, as well as the interest rate you receive.
As with any loan, you should shop around for the best interest rates and terms and consider loans from different lenders. This is where a broker can come in handy, as they know which financier will lend for tiny homes and be able to find the best option for your specific needs.
Costs Related to Buying a Tiny Home
The costs related to buying a tiny home can vary widely depending on various factors, including the size, type, customisation, and location of the tiny home.
When looking at your tiny home buying budget, there is plenty you need to take into consideration, including:
Base Price: This is the initial cost of the tiny home itself. The base price can vary significantly, depending on factors like size, design, materials, and quality of construction. Tiny homes can range from $10,000 to over $100,000 or more.
Customisation: If you want to customise your tiny home with special features, appliances, or materials, these upgrades come with additional costs. Customisation can significantly increase the total price.
Delivery and Setup: If your tiny home is on wheels, you may need to pay for delivery and setup at your chosen location. This cost can vary depending on the distance and complexity of the installation.
Land or Parking: You’ll need a place to park or place your tiny home. This may involve purchasing land, leasing a spot in a tiny home community, or negotiating a rental agreement for someone else’s property. If you own your land, you will need to consider what construction is needed to ensure your home has a level surface.
Utilities: Consider the costs of utilities, such as water, electricity, and sewage, which will depend on the type of infrastructure available at your chosen location. Off-grid tiny homes may require additional expenses for self-sufficient systems like solar panels and composting toilets.
Insurance: You will want to insure your tiny home, which can protect your investment from damage or theft. Insurance costs will depend on the value of your tiny home and your coverage needs.
Zoning and Permit Costs: As a tiny homeowner, you need to ensure your new home complies with local zoning regulations and building codes. Obtaining the necessary permits and approvals may come with associated fees.
Financing Costs: If you’re using a loan or financing to purchase your tiny home, you’ll need to consider the interest and fees associated with the loan. The terms of your loan will determine the total cost of borrowing.
Maintenance and Repairs: Like any home, tiny homes require maintenance and occasional repairs. Budget for ongoing maintenance costs, such as repairs, renovations, and replacements of appliances and systems.
Furniture and Appliances: You may need to purchase furniture, appliances, and other furnishings to make your tiny home comfortable and functional.
Transport Costs: If you’re moving your tiny home from the builder to your location, consider the transportation costs, including permits and escorts, if required.
Resale Value: Keep in mind the potential for future resale value, as this can affect your overall financial outlook. Some tiny homes retain their value well, while others may depreciate.
It’s essential to carefully budget and plan for all these costs to have a clear understanding of the total investment required to buy and maintain a tiny home. The specific costs you’ll come across will depend on your unique circumstances, location, and preferences.
If you’ve been considering a sustainable alternative to call home, tiny homes can be a great investment. Give our friendly team a call and get started on the road to your new home.