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Tiny homes offer freedom and flexibility, but it can be difficult to gage whether or not downsizing is financially the right move for you. Along with lifestyle changes, it’s important to know how you can best finance this move, be aware of the costs involved, and which home loans are available. Keep reading as we break down the process of purchasing a small property.
Tiny homes have become increasingly popular in Australia. They are, as expected, tiny in size. They are typically comparable to the size of an RV or a caravan. Some are planted firmly on soil but most are built with wheels, enabling these homes to be mobile.
The tiny home movement is attractive amongst prospective home owners because it lifts a considerable financial burden from households as well as offering a minimalistic lifestyle. Particularly since in Australia's recent housing boom, tiny homes have become an affordable housing option for first home buyers.
Financing a tiny home can be tricky because of its smaller size. To qualify for a home loan you may need to meet extensive criteria.
Due to the size and nature of the home, obtaining a standard mortgage is a lot harder as it doesn't appeal to the general market, and is specific to a certain type of buyer.
This results in increased selling periods and most lenders do not have the appetite to take security over property that will require a selling period of greater than 6 months. Usually, they would want at least the bedroom to be separate, which would rule out loft style bedrooms, a beautiful and space effective feature of many tiny homes.
Access equity from land - If you already own the land the home will be built on, you could do a valuation to see how much equity you have in the land, and whether it will be possible to increase your loan to fund the build.
Unsecured personal loan — If you go down this route, you must be aware that your repayments will be higher since it is a short term loan, typically between 1 and 7 years. Unsecured personal loans come with a higher interest rate compared to a home loan. If you intend to purchase another property in the near future, your borrowing power will be lowered until the personal loan is fully serviced and paid off.
Chattel mortgage — This is most similar to a car loan. Unlike an unsecured personal loan, a chattel mortgage uses your vehicle or tiny home as a form of asset. You gain ownership of the asset and pay off the loan usually between 2 to 5 years. Interest rates on chattel mortgages are typically lower.
Motorhome loan — If your tiny house sits on wheels, you could qualify for a motorhome loan. Repayments for a motorhome loan can span between 10 - 15 years. Most lenders will require a 20% deposit. Ensuring that your tiny home meets all safety and road requirements can improve your chances of being approved. Interest rates vary, they can depend on your credit score, the vehicle itself and the loan total.
See how much cash you could access from your property.
We've seen tiny homes built for as low as $7,000 but they can range up to $60,000+ on average, depending on the internal fitout. If you already own the land, you could do a valuation to see how much equity you have in the land, and whether it will be possible to increase your loan to fund the build.
Get an estimate of how much your tiny home would cost and potentially reduce the deposit on your loan to allow enough cash to pay for the build without a bank getting involved.
The costs of building or buying a tiny home can vary, just as they can vary with a standard home. Things you need to consider include:
Other costs you may want to keep in mind are annual registration fees and rental fees for land that offers electricity and water if you plan on living in a mobile tiny home. Since loans for tiny homes are generally for shorter terms, in the long run you may see yourself saving money.
Choosing to downsize and simplify your needs and expenses can be beneficial towards your lifestyle. The enthusiasm for smaller spaces and rise in demand of tiny homes can sometimes make it overwhelming to decide on whether they’re best suited to your needs. Chat to a Home Loan Specialist to discuss your options further.
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