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How to finance a tiny home purchase

Canadians being priced out of the housing market are turning to tiny houses as a solution. And, while the humble houses make financial sense, it can be tricky to get the money you need. Here's why
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The tiny house movement is catching on around Canada, and it’s easy to see why. Soaring house prices in big cities are making it difficult for buyers to afford traditional-sized homes. This makes the decision to go tiny appealing but the question remains, how do you finance a tiny home purchase?

The decision to live in a tiny home gives you some major financial advantages. The purchase price of a tiny home is often half the price of a normal-sized home, and you need significantly less money for a down payment. Being mortgage-free (or having a much smaller mortgage) is also a liberating proposition.

But there are some challenge with becoming a tiny home owner. And the biggest challenge is the purchase, itself. If you’re in buying or building a tiny home keep reading to find out how you can finance a tiny home of your own.

The cost of a tiny home…is tiny

Living-in-a-tiny-home-small-living-space-cost

Tiny home living is growing in popularity because more and more people are warming up to the idea of trading in living space for less debt. But that’s not the only reason why tiny homes are gaining in popularity. As more people become interested in eco-friendly ways of living, owning a tiny home becomes more attractive. Not only is it an easier option to get off the grid — where you no longer rely on state or utility-company provided resources for heating, electricity and water — but for those who don’t want off-grid living, tiny homes offers a smaller footprint with lower monthly utility bills.

So, what do tiny home actually cost? A tiny home on wheels can start at around $30,000. Not quite an RV, these tiny homes are built on a mobile (with wheels) chassis. This makes them transportable, so they can be moved from spot to spot, but not quite as independent in function as an RV. You still need to set the home in place to hook up your utilities, plus the home isn’t meant for continuous travel. Tiny homes built in-place (not on mobile chassis) typically start at $60,000 and offer more space than a tiny home on wheels. Another option is a micro-condo (aka micro-suite). These are very popular, especially with millennials, because of their reasonable city-living price point. For instance, in Vancouver, B.C., a micro-condo with approximately 250 to 300-square-foot of living space starts at $225,000.

Financing issues for tiny homes

Small wooden rustic cabin house. Exterior design.

Yet, despite their affordability, and their growing popularity, financing a tiny home can be difficult if you can’t pay for it outright. Most major lenders in Canada and the USA will not provide a mortgage on tiny homes, that is, anything under 500 square feet.

So what’s the issue?

Banks have zoning, certification and sizing rules about what constitutes a residential dwelling depending on the province where it resides. Tiny homes tend to fall outside these definitions, so many banks will refuse to loan against them. They are also seen by lenders as having limited investment potential.

Another issue for banks is the difficulty of appraising a tiny home’s value. A tiny home on wheels that can be moved around isn’t fixed to a certain plot of land, so resale value is difficult to determine.

Where to find tiny home financing

Interior design of a dining room and kitchen in a tiny rustic log cabin.

So, what should you do if you want to live in a tiny home?

The ideal scenario, if you want to be mortgage-free, is to save up the cash yourself and buy or build a tiny home outright.

But if this isn’t realistic for your situation then do some searching to find smaller banks, local credit unions and second-tier lenders in Canada who are willing to finance a tiny home purchase. If you’re purchasing a tiny home on wheels you may be able to get an RV loan.

Borrowing from friends and family is also an option but make sure you put the agreement in writing to avoid any future disputes

Who builds tiny homes in Canada?

There are a lot of Canadian companies that specialize in building tiny homes if you want to use someone else’s expertise. Check out:

Some tiny home builders also help clients work closely with lenders to secure financing, so check with them on what they offer. If they can’t help with financing, they may be able to accept an initial deposit and then instalments after different stages of the project are completed.

The Tiny House Construction Company and both Rewild Homes and Mint Tiny House Company offer this kind of payment structure for their clients.

So don’t give up on owning a tiny house if you can’t get a traditional mortgage from a bank. There are lots of financing options out there, as well as tiny home constructions, to suit your unique needs.

Angela Pearse
Angela Pearse

Angela Pearse is a freelance writer who frequently travels but loves returning home to her Art Deco apartment. She’s also passionate about historical novels, Netflix, hiking and healthy living.