May 02, 2019 1 Comment
This week, @emilytravels__ asked the Dream Team how they financed their tiny house?
Cutting down on my cost of living expenses was a huge motivator behind my decision to go tiny, as I’m sure it is for most people. In an ideal world, I would have saved up for years and moved into my tiny house debt-free. But I did the math to see what would make the most sense, and by procuring a consumer loan from my local bank to finance my house, I swapped my rent payments for loan payments which were about $200 cheaper, per month.
I worked with a local bank who my whole family have banked with for years. They had never done a tiny house loan for anyone before, but had heard enough talk about the premise to be interested. I showed them my plans, my budget, and talked a bit about the overall tiny living movement, and suddenly, my banker was just as excited as I was. I recognized from the beginning that if I were diligent about my payments to the bank, followed up with any issues, and generally was an ideal customer, I could be opening the door for them to finance more tiny house loans to others in the future.
The loan covered 80% of my build cost, and I saved up over the course of about 6 months to make up the difference. Aside from saving every extra dollar I could from my existing paychecks, I also started earning money on the side in any way I could. I walked dogs and house sat, I charged those dockless electric scooters for a few bucks each, I sold my belongings on Craigslist, I tested websites for $10 a pop... basically anything I could do in my free time that would make me a few dollars, I did. And all that work was really worth it.
I'm very glad that I didn't wait a few years while trying to save up the cash I would need to pay for the house outright. Procuring a loan may end up costing me more in terms of interest in the long term, but it did cut my cost of living in the short term, which allows me to handle paying off other debt. But most importantly, it allowed me to start living my tiny lifestyle much sooner.
We financed our home through Lightstream, however that was not our original plan! When we were shopping around for financing options, we found a new company called KFG (Koala Financial Group) that was offering loans for tiny houses. We were so excited to hear this news! Knowing that the biggest barriers for potential tiny home buyers are where to park it and how to finance it, we felt excited not only for ourselves but what this could mean for the entire tiny house community. They offered flexible payment terms, the interest rates were good, it seemed to be a perfect solution.
However, things didn't go exactly according to plan. KFG was extremely difficult to communicate with, and when we were able to get in touch with them, we were told contradictory things by different people. Originally, we were told that funding would be available in August 2018, but that was consistently pushed back. Eventually we needed to seek out other options as we had our house scheduled with our builder and we couldn't wait any longer.
We heard that some people had success using Lightstream for tiny house financing, so we decided to give them a try. The process was so easy and fast! We were approved and received financing within 2 days. They were great to work with! Lightstream offers RV loans ranging from $5,000 - $100,000 and the payment terms range from 24 - 84 months. It is not necessary to have an RV certification on your tiny home to qualify for their RV loan.
Hopefully we will start seeing more companies offering loans for tiny houses so that securing financing won’t be the struggle that it has been for so many.
Part of our downsizing journey has been to become mortgage and debt free. Since we built our home ourselves over the course of two years while we both continued to work at our respective jobs full time (and bar-tended weddings during the summer on Saturdays as a side hustle), we were super fortunate to be able to pay for it as we built.
We realize that each situation is unique but we’re not alone in the tiny house community—there are a good deal of DIYers out there who have saved a ton by using reclaimed and recycled and by doing the labor themselves and/or with the help of generous family and friends.
Not having to worry about a mortgage has given us tremendous freedom and such peace of mind. While there are still people who question our decision and say things like, “I could never live like that,” we have been saying we can’t imagine a life where you slave away for four-plus decades just to afford a roof over your head.
I’ve noticed, as with most things in life, it comes down to time and money. For our tiny home, we didn’t have the time to build it ourselves… we also didn’t have the money, ha!
In order to finance our home, we ended up taking out a personal loan through our bank. Our tiny house didn’t qualify for a normal mortgage loan, since it’s technically not a house; and we couldn’t finance it through a loan that one would purchase an RV, since our home isn’t RVIA certified. To get around these obstacles, we went with a personal loan.
Obviously, this route won’t work for everyone, and while we weren’t thrilled with taking on additional debt, we thought that it was worth it since we would be able to pay off our home in 5 years (or hopefully less).
So far, it’s been great! We know for sure our home will be paid off in 5 years if we don’t do anything differently, and we feel that the amount of money we’ve been able to save living this way has definitely offset any setbacks and risks of having such a loan.
We obtained a mortgage through our bank. Our Tiny Haus is built as a secondary dwelling (foundation home) on our existing block that we own.
I find anytime finance is sought, it is stressful—we ran into problems with the valuer, who couldn’t wrap their head around the size and found it difficult to value this type of structure. In the end we engaged a finance broker who helped deal with the various parties. The process was long (from memory over 3 months) and there were sleepless nights where we thought we wouldn’t be able to get our project off the ground.
Our advice to someone else going down this path:
People have said we are mad going into more debt for what is our simpler/more minimalist lifestyle, however we spent almost a year working through our circumstances and our vision for how we wanted to shape our lives and this is what worked for us.
We created a second income by renting out the front house on our block. Our property has now become positively geared, where the rental income covers the expenses for our property. Any additional money we have goes to reducing the principal on our mortgage and we are hoping to pay down our mortgage over a much shorter timeframe than 30 years, which has become the normal term for a home mortgage. We don’t feel like we’re slaves to our mortgage repayments or the bank, we feel in control of what we have created, even though initially we went into more debt.
We had rented previously and unfortunately experienced some stressful situations where we had to quickly look for a new home and move in really short periods of time due to the landlord deciding to sell or decided themselves to move back into the property. We didn’t want to have to go through this experience again, we wanted the certainty of knowing that we can stay where we are for as long as we want. As a family we want to feel settled and have a solid connection in our community.
We put down a large down payment, and then financed the rest through an online Credit Union (https://www.alliantcreditunion.org/), via an RV loan. In the end, we secured a 15 year loan at around 5%. That was possible because our builders were RVIA certified and NADA listed. Alliant has been easy to work with, with great online tools/app, and friendly phone staff.
We had applied through other traditional bank sources, but were often told during the process that “our underwriters say that’s a tiny house, and we don’t finance tiny houses” - despite these certifications. That was extremely frustrating and stressful, and can also be the case with some insurance providers. While “tiny house” is just a phrase without a legal definition, it can come up during the loan application process.
In the end, with Alliant, it was useful to simply send links to RVIA and NADA pages, our builder, the finalized quote/contract, and to refer to the tiny house exclusively as a “travel trailer,” which technically it is.
Two other things to consider, in order to get the best rates and longer terms (in our case, an RV loan):
As a result of 1 & 2, they may require a co-signer, even if you have excellent credit and flawless payment history. That can also be frustrating, but having a supportive and well-qualified co-signer on a loan can save you thousands.
Our goal was never to be debt/mortgage free, but rather to be working less (while raising our daughter for those first few years), while working towards ownership (rather than renting). In the end, we designed our dream tiny house, built with integrity and top of the line materials, at a monthly cost half of what we paid to rent a 2 bedroom apartment. Relatively low monthly payments due to the length and rate of the loan give a lot of financial flexibility to our young family, and the ability to shift and change with priorities.
As our daughter gets older, and we shift back to dual full-time incomes, our cost of living will stay low. That gives the freedom to pay off the loan faster (as there are no penalties for making excess payments), or saving towards our next (small) home and land.
Paying outright for your home sounds like such a baller move that I would love to experience at some point in my life, but new financing options sprouting up have made living tiny very attainable if you take some time to do your research.
Maybe shelling out $50,000 cash my not be the smartest financial move for you at this time, and financing your home with an affordable payment may be just right for you!
If you'd like to submit a question for next week's Q&A series, be sure to tune in to our Instagram Stories every Thursday night to ask away!
September 13, 2019 35 Comments
September 13, 2019 2 Comments
My name is Alan—founder at Dream Big Live Tiny Co! A few years ago, I quit my consulting job to pursue a life full of adventure. After traveling around the world for a year, I sold most of my stuff and moved into an 160-sqft tiny house. Now I spend most of my time showcasing incredible people living with less in pursuit of more freedom, as well as incredible tiny houses around the world!
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