Tiny homes have become incredibly popular over recent years, and for good reason: they’re economical and flexible without sacrificing all the comforts of home. However, they still cost a few thousand dollars, which you might not have readily accessible. Thankfully, there are plenty of tiny home mortgage options available to help you cover the cost of a tiny home purchase in Canada.
Let’s take a look at them all to help you determine which option is most suitable for you.
Key Points
- A tiny home is a much more affordable homeownership option for Canadians.
- However, financing a tiny home may need to come from a source other than a traditional mortgage.
- Alternative financing options may include chattel mortgages, RV loans, personal loans, credit lines, and home equity loans.
Can You Finance A Tiny Home With A Regular Mortgage?
A conventional mortgage is typically designed solely for traditional real estate, which does not usually include tiny houses. Lenders usually have certain criteria that homes must meet before they hand out mortgages to finance these purchases.
For example, the home may have to be built upon a fixed foundation. Plus, lenders may have minimum loan amounts. Since tiny homes can be bought for as little as $10,000, you may not have much luck getting a lender to approve a mortgage for so little.
If you need financial assistance to buy a tiny home, you may need to look at alternative loan products, which we’ll get into next.
| Are tiny homes legal in Canada? Yes, tiny houses are legal in Canada. That said, every province and the municipalities within them, have their own zoning bylaws that affect the legality of these types of dwellings. Bylaws determine building regulations and land use and can place restrictions on the size, height, and features of tiny homes. |
See How Much You Qualify For
Traditional Mortgages For Tiny Homes Built On A Permanent Foundation
If the tiny home in question is priced over a certain amount and is permanently fixed onto a foundation (i.e is not on wheels), it may qualify for traditional mortgage financing.
That said, there are some considerations involved:
- Lender Availability: Some lenders may not be willing to offer traditional mortgages for tiny houses, even if they are over a certain price point and are built on a foundation. In this case, you may need to look for lenders that are experienced in financing non-traditional homes.
- Appraisals: The tiny home may need to be appraised by the lender to determine its current value. Since tiny homes don’t fit standard appraisal models, this process may be more complex.
- Zoning: The land that the tiny house will be located on must be zoned for residential use. Be wary of zoning restrictions, which could impede the financing process.
- Down Payment: For tiny home mortgages, down payments may be higher compared to other financing options for tiny homes, like chattel mortgages
Other Tiny Home Mortgage Alternatives
Instead of applying for a traditional mortgage to finance the purchase of a tiny home, there are other sources of financing available. The type you choose will depend on the amount you need to borrow, the exact type of house you’re buying, and your financial and credit profile.
Tiny Home Mortgage Alternative #1: RV Loans
If the tiny house you’re buying is considered an RV — which is portable and mounted on wheels — then an RV loan might be most appropriate. An RV loan provides you with a lump sum of money upfront for you to use to buy the home. Then, you repay the loan amount, plus interest, in installment payments.
Pros
- Collateral – You can use your tiny home as security for these loans, which means you may qualify for a higher amount or lower rate.
- Low Payments – Long-term financing is also available to help you keep your monthly payments low.
Cons
- Safety Regulations – The downside to an RV loan is that your tiny home will likely have to meet certain safety criteria and be certified by the Canadian Recreational Vehicle Industry Association to qualify.
Tiny Home Mortgage Alternative #2: Chattel Mortgage
A chattel mortgage is a loan designed to finance a moveable personal property, including a tiny home. These types of loans are more like auto loans than traditional mortgages. In this case, the lender will technically own the structure until the loan is paid off in full.
The great thing about chattel mortgages is that the interest rates associated with them are usually lower than personal loans and are easier to qualify for. If your tiny home is not moveable, however, it may not qualify for a chattel mortgage.
Pros
- You Plan To Move Often – Whether you plan to move often or park your tiny home on a piece of land you bought, a chattel mortgage can be the most suitable option.
- Flexible Payments – Niche mortgages like chattel mortgages typically have shorter payment periods and more flexible repayment options.
Cons
- Hard To Find – It can be difficult to find a bank or online lender who offers chattel mortgages.
Tiny Home Mortgage Alternative #3: Personal Loan
You may qualify for a personal loan if you have the finances and credit scores to qualify. Like a traditional loan, a personal loan provides you with a chunk of money that you use to pay for the home, after which installment payments are made on a regular schedule until the loan amount is paid in full.
Pros
- Long Terms – Personal loans come with loan terms ranging from as little as 6 months to 10 years. This will allow you to spread your costs according to your financial situation.
- Versatile – The funds from a personal loan can be used in any way you see fit, including covering the cost of upgrades.
Cons
- High-Interest Rates – Interest rates can be higher with unsecured personal loans, especially if you have bad credit.
Tiny Home Mortgage Alternative #4: Personal Line of Credit
A line of credit works similar to a credit card. You’ll be approved for a specific credit limit, and you can withdraw from your account as often as you wish, as long as you don’t go over your limit. When the funds are repaid, you can withdraw that money again.
Pros
- Instance Access – Having access to a line of credit means you don’t have to re-apply for a loan whenever the need for extra funds arises. That means you can tap into your line of credit whenever you need to upgrade your home, or for other purposes unrelated to your house.
- Minimum Payments – With a line of credit, you don’t have to pay the balance until the draw period ends. Until then, you simply need to make the minimum payment to keep your account in good standing. This will give you more control over your payments.
Cons
- Limited Credit – The credit limit on your line of credit may not be enough to cover the cost of a more expensive tiny home.
Tiny Home Mortgage Alternative #5: Home Equity Loan Or Home Equity Line Of Credit (HELOC)
If you’re already a homeowner and have built some equity, you may be able to access that equity to cover the cost of buying a tiny house.
Home Equity Home
With a home equity loan, you’ll get a lump sum of money from your home’s equity, which is repaid through installment payments.
Your home will be used as collateral for this loan, so it’s important that you keep up with your payments or you risk losing your home. Moreover, due to the added security of the collateral, you may qualify for a lower interest rate and longer terms.
HELOC
With a HELOC, you’ll have access to a credit account, much like a line of credit as already discussed. This time, your home equity is being used to back this account. This means it may be easier to qualify for and your rates may be lower.
Like a personal line of credit, you can access the funds any time, and you regain access to the funds as you repay them.
Costs To Consider When Financing A Tiny Home
Much like a traditional home, there are several costs that come with both purchasing and operating a tiny house:
- Upfront Costs. In addition to buying the actual structure, you will have to pay for (or lease) the land that the home sits on. And if you decide to build the home, you’ll need to cover the cost of materials and the builder (if you hire one).
- Parking. If you buy a mobile tiny home, you’ll need to pay for parking fees whenever you stop.
- Fuel. Every time you move your time home (if applicable in your situation), you’ll be using a lot of fuel given the size and weight.
- Insurance. Depending on the exact type of home you purchase, you’ll need some sort of insurance policy to protect it.
- Property Taxes. If applicable, you may be required to pay property taxes and permit fees.
- Utilities. Unless you’re living off-grid, there will be utility costs involved to operate your tiny home, including gas, electricity, and water.
Final Thoughts
A tiny house may be a great idea if you’re comfortable with a much smaller footprint. And if you don’t have the financial capability to purchase a traditional home, a tiny home is much more affordable. Whether you decide to buy a pre-built tiny home or prefer to have one built for you, there are financing options available to help you make this purchase.
