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.
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.