You’ve dreamed of a MicroHome, followed them voraciously on
Pinterest, watched all the HGTV shows and now you want a Tiny Home of your own.
One of the questions that has come up with the launch of our new Micro Homes
line is “How do I buy a tiny home?” We
contacted our friend Derek Rose of the Royal Bank to find out your choices and
options for making your Tiny Dream a reality.
What type of loan will I be asking for?
THOWs (Tiny Homes on wheels) or Micro Homes are actually built
as an RV which has taxation and financing implications. When you approach your financial institution
you will be looking for a personal collateral loan sometimes referred to as a
secured debt. The collateral or secured
part is, in this case, is the Micro home you would be purchasing with the
loan. In essence mortgages and car loans
are also secured or collateral loans but in each type of collateral loan there
are slight differences.
What is a secured or collateral loan?
The similarity in mortgages, car loans, and secured loans is
in all 3 the security for the loan is the item you are purchasing. The financial institution is taking a lien or
interest in the object you are purchasing to secure the money they have lent
Will I need a down payment?
This type of loan requires a down payment and the amount can
vary depending on the institution you are with and your relationship with
Why do they want a down payment?
The purpose of a down payment is to be sure the institution
loaning the money has value in the item being borrowed against because in the
worst case if a default occurs it is they are unlikely to be able to recoup the
full amount loaned. We have all heard
the statement that a new car loses 10% of the value when you drive it off the
lot and although that may be arguable in some cases we can understand that once
something has been used it can decrease in value particularly if not properly
maintained. This is very evident in car
purchases where it is safe to say once a car has been driven a bit and lost its
new car look and smell, and no one is likely to pay full purchase price to buy
it. Houses on the other hand can lose
value or gain value depending on many variables including location, design and
Not all banks are on board
Tiny Homes are relatively new and are being treated
differently by various lending institutions because they are uncertain how to
treat them. There isn’t a lot of history
regarding the value of the tiny homes and how they will change over time. They may depreciate (loose value) like a car
or like a house they may appreciate (gain value) or depreciate depending on how
you care for it and where it is located.
How much will the down payment be?
All that said, currently most banks will ask as much as 10%
down payment depending on your history with the bank and what you have as
established credit with them. This can
seem high when compared to some of the deals out there for car loans down
payments at 2.5 to 2.7%. and home
purchases where they commonly ask for 4 to 8%.
How long will my tiny Home Loan last?
The length of loan or amortization period is also different
in the three types of loans. In years
past car loans were typically 3 years but have crept up to 5 to 8 years
recently. A house loan on the other hand
may go 25 or 30 years. The RV type of
collateral loan can be 15 years with RBC.
Of course like all loans the greater your down payment the better and
the faster you can pay it off the better because lending costs increase over
time. Do your research to maximize your
Another consideration is insurance. Generally a lending institution will ask that
you carry insurance on the object being used for collateral. There are insurance companies out there
starting to offer tiny home insurance. If
your current insurance company will not give cover an RV on your automobile
insurance policy contact a broker and they should be able to help you.
Derek’s advice…When it comes to finances a long term
relationship with your lending institution is important, although it is common
practice now to put loans out to bid you may find developing a relationship
with your preferred lender gives you more flexibility and security.
While at first financing your Tiny Home may not seem as easy
or cut and dry, don’t be discouraged, when you are dealing with new products
and options there will always be service providers who lag in catching up to a
trend, you’ll find the right fit for you along the journey.
The Tiny House movement is spreading and getting interest as
it should. If you are a tiny house
enthusiast get involved. Changes can be
expected in lending, permitting, insurances and many other aspects of tiny home
life as more people show an interest in living tiny.