1-888-294-1222

How can I buy a MicroHome ?

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

 

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 you. 

how much is the downpayment ?

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 them. 

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 use.

Can I deal with any bank ?

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 buying power.

Insurance

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.

Get Involved with Tiny Houses

Final words

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.