From finding the right piece of land to building or buying your house, there are many steps involved in creating your ideal small home. If you’re targeting a more permanent tiny home, meaning it is not placed on wheels, the first step will be finding and purchasing your land. Leasing land for a manufactured home is an easier option, but it is an investment that will depreciate in value overtime. It’s important to find land in the area you want to live in, while also considering local zoning laws and other restrictions that may affect your ability to build. You can’t purchase a tiny house with a traditional mortgage, but there are other financing options for tiny homes. One common alternative is the land loan. Although Rocket Mortgage® does not offer land loans, we understand the importance of educating our clients on all their options.1. Finding The Right Land
2. Taking Out A Land Loan
Land loans are obtained in the same way home buyers would obtain a mortgage loan, but while a house for sale has a dollar amount assigned to it, it can be harder to determine the value of land when there is no property collateral. This makes land loans a higher risk for lenders, which leads to larger down payments and higher interest rates than a typical home loan.
Land loans are used to finance the purchase of a plot of land to either build a home or utilize it for business purposes. Types of land loans include raw land, unimproved land and improved land loans. The type of land loan you need will depend on where the land is located and what you intend to use it for.
In order to qualify for a land loan, you will need a significant down payment and good credit score. It can be challenging to get approved for these loans due to the lender’s potential risk, so it is crucially important that you create a solid, detailed plan for how you want to develop the land that you can show lenders, as your commitment to this plan may convince lenders that you pose a lesser risk.
3. Tiny House Price Shopping
Stick built tiny homes, which are built on a foundation and most similar to traditional houses, are easily the most expensive. But if you want to build without starting from scratch, you also have the option to purchase a tiny house shell, which has a finished exterior with an unfinished interior, allowing you to personalize the space for your needs. A standard shell ranges from $17,000 – $37,000, not including add-ons like electrical and plumbing.
There are also kit homes available that typically cost less than $10,000. These kits come with blueprints, a customized trailer to build upon and a list of needed supplies. Although this is a great idea for some people, we typically do not recommend any do-it-yourself methods to build your home without some sort of advanced construction experience.
Based on your budget, manufactured homes and modular homes are other types of tiny homes you may want to consider on your hunt for the right tiny house.
4. Financing Your Tiny House Construction
If you’re building your tiny home, a construction loan can help you get started. A construction loan is a short-term loan that covers the costs of custom home building. Once the home is built, the borrower must then apply for a mortgage to pay for the completed home.
There are several different types of construction loans, and determining which loan is right for you will depend on the amount of financing you need as well as the project you plan on executing. Rocket Mortgage does not offer most construction loans, although for current homeowners a cash-out refinance could be an option to access equity in your home and free up funds. There are also additional ways to save if you’re building a house on a budget.
