The Tiny Home Loan Conundrum

Tiny homeThe tiny home trend–fueled in part by television shows and a generational counter cultural movement towards minimalist living–has an interesting problem: Financing.

Matt Parker writes in “Why Can’t I Get a Tiny Home?” for REALTORMag:

“Like many millennials, my wife and I don’t want a big house. But that’s all we can get a loan for. The problem is tiny homes, typically less than 500 square feet, won’t appraise. There aren’t enough of them out there for lenders to determine reliable appraisals based on comps. And lenders won’t finance a project without an appraisal. Small homes do exist, but not many really small ones. Most lenders, in fact, will only finance homes that are no smaller than 40 to 80 percent of the size of a comparable, nearby home. In my market, that means buyers can’t go much smaller than 1,500 square feet for a single-family home. In order to buy, you have to go bigger.”

Parker believes this is a big problem for a generation which is “on the go” and doesn’t want to tie themselves to “cleaning 14 bedrooms and mowing a lawn.”

For Parker, it is lending ratios which are partially to blame, claiming “Underwriters want to see home structures that are two to four times more valuable than the land.” He goes on to say, “So why do these ratios for lending exist? That’s my question. Loosen them up, and I know at least three people–my wife and I, plus a great builder–who will pay you for a tiny home. And then we will sell it to one of the many others looking for tiny homes.”

Have you run up against this conundrum in your market? What’s your move when someone seeking a tiny home can’t get the banks to step up?

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