Guest Post by Jonah Trenton
Many people today are making the decision to live in areas with a lower cost of living and to purchase lower priced homes. Affordable housing is commonly found in more rural areas, but many urban and suburban areas have home prices under $100,000 today. If you have found the perfect home that fits your needs and your budget, but that is priced under $100,000, you may be having trouble finding a loan program that fits your needs. A low loan amount can be a challenge, but with effort most home buyers are able to find the financing they need to purchase their home.
FHA Loans
FHA loan limits will vary by location, but in some cases loan amounts are available well under $100,000. For instance, the minimum loan amount for FHA loans in Florida is $40,000 with up to 98.75% LTV if the loan amount is under $50,000. Each location will have its own minimum loan amounts and maximum LTV thresholds based on property values in the area. So it is important to take time to research FHA guidelines in your area or to work with a mortgage broker familiar with FHA loans.
Bank Loans
Many banks will not consider low loan amount loans. These loans are considered riskier than larger loans because the collateral has a lower value than larger mortgage loans. These loans are also less profitable for banks. This is because many banks charge loan fees as a percentage of the loan amount. A 2% fee on a $60,000 loan is considerably less than a 2% fee on a $300,000 loan. Yet while bank loans may be difficult to obtain, some banks do offer lower loan amount mortgages to borrowers. In many cases, however, banks will want to see a strong borrower with higher credit scores. They may require a higher down payment as well, as this can minimize their risk associated with financing the purchase or refinance of the property. Further, mortgage rates may be higher.
Unsecured Loans
Many people do want to obtain a home mortgage when possible, as a real estate mortgage offers lower rates and a longer term. Further, the interest on a home mortgage is tax deductible. However, if you are looking for a very low loan amount, it may be possible and even beneficial to obtain an unsecured loan for your needs. Unsecured loans are available to good to excellent credit borrowers. In some cases, unsecured loan amounts may exceed $50,000. Further, while the term will be shorter, if you can manage the higher payments associated with a shorter term, you can enjoy the benefits of having your home paid off in just a few years. Further, an unsecured loan will not require an appraisal or other associated reports that are typical with a real estate purchase, and the overall time to close on the loan is greatly reduced.
There are several options available for home buyers who are considering purchasing a smaller property with a lower value. In many cases, a home buyer will be able to find a real estate mortgage that fits their needs. However, if a real estate mortgage is not able to be found, an unsecured loan may be worth considering as well.
I think the larger issue is not so much for a home loan as it is a land loan. While most banks and loan programs will still lend for a home the parameters seem to shut out most new construction and most land purchases. I don’t think a true, affordable option is in the near future unless we see “packages” that include a small plot of land, a small home (or build to suit), etc.
Banking is for capital investment not shelter. If you want to start a widget factory, Get a loan.
BoA (and other predatory lenders) should own no part of your personal life.
I would rather be in prison than in debt.
“I would rather be in prison than in debt.”
…most people today feel that their debt is imprisoning them. Regardless, you are correct.
Unfortunately, what people want and what people need is not conducive to the financial and government sectors.
We all have to live somewhere, though, and renting when you have the skills to build your own house, but can’t afford to make the transition is like slavery to me. I think I would rather be in a prison, at least my sentence would end some day and I could get out by paying off the prison. Right now I just pay for someone else’s security and retirement. Sigh.
Also don’t forget VA loans for veterans and active duty military. I’m a retired vet and will be looking for a VA loan on a small (900 sq ft) in rural Illinois, Colorado or the East coast ( PA, VA, NC).
I would imagine it would also be a good long-term idea to buy land first and then build your house after you pay off the land. I know this means you need to come up with cash first to buy the land or at least make a big down payment on it, but then you can use the equity in the land to have cash on hand to buy materials and hire workers (if needed) to build your home. My brother in law bought 2.5 acres in northern Wisconsin for cheap and built a cabin over the course of 2 years going up there on weekends. He keeps going back to add solar lights and other things, and will be adding a pump well to get some water too. I like this idea but it means that you need to be really selective with how you spend your money.
I have looked into California land and land/construction loans. They all require 30% down are usually ARM: fixed for 5 yrs then adjustable APR . This is considered predatory unless you can pay it in 5 yrs. If you want a conventional loan: buy a fixer upper on a nice piece of land and use the house for storage or as a rental. Buying land is pointless because you never own it. You just have first rights for land use. Your property taxes are rent to the government.
Considered predatory by whom?
I’ve heard this mentioned before in various instances, and I think what people fail to realize is that mortgage interest is an itemized deduction. The interest on the entire first year of an $80,000 mortgage at a 4% interest rate isn’t even half of the standard deduction for a single taxpayer. Unless you have a bunch of deductible medical expenses, moving expenses, charitable contributions, etc, it’s not going to do you any good.
I was able to get a $25,000 30 year mortgage from my Credit Union. Check out Credit Unions. I understand many of them will allow you to become a member for a small fee. I happen to work for the county, so I could join a local one.
It’s sad really…in order to have affordable and desired small housing in America, you have to have excellent credit and lots of money down? Kind of defeats the purpose but once again gives the advantage to the people who have the money and land up front. When this catches on fully, people will have no choice but to be smart about it, like in Jay’s case where he bought a home and rented it while living in the back. Such a route is probably the best way here in CA.
I have found land in the surrounding area for as low as $15,000 with amazing views, but the California Coastal Commission limits the minimal sizing. Oncea again profits and desirabilty for people with money trump the American dream and opportunity of owning a home. As a veteran I find this disheartening, I have to be, in a sense, a refugee of my own country, and with my UC school going up repeatedly each year, this is a great dream shot to finish education off and be a home owner. But do not give up people! And do not rent the higher priced back yard bungalows from people trying now to pay off their homes and retire! Instead, share a room or living room and live like our ancestors did, dreaming and saving by candlelight in a packed room, until the day comes you can own your own. Unless of course, you have bought the well-perpetuated nonsense that living debt free today is impossible…
Thank you for this well-thought-out and timely post, and all the comments too! I have learned a lot by considering all the points made, and haven’t found any similar info anywhere. Maybe most of it is through experience – which I don’t have – but like I said, I haven’t heard anything as helpful anywhere til now. I want to build a small house on my own land, but am finding out the reality of the task is a lot more daunting than I’d wish. What I need is factual info, grounded in experience from those who are honest and trustworthy. That’s what I see here. Thanks!
Look online at Zillow.com for lots that are uber cheap because they’re not buildable. Every town has them, typically oddly shaped, very small, sloped, etc, but often with utilities right there. Seems like this would be a great use for a tiny house, especially one on wheels.
Could a town tell you that you can’t put that there, when it’s your own land, and it’s not a permanent structure??? Well landscaped with perhaps privacy fencing, at a casual glance they would look more like someone’s storage or garden area, not a standalone housing unit.
Seems to me that going forward all local municipalities will be grasping at straws trying to keep their tax bases up, even at a few hundred dollars a year and up. And most tiny house owners don’t add to the need for additional school and teacher facilities.
Also there may be property owners who would be interested in deeding off a small portion of their land to a tiny house dweller in return for the money boost, or people who are now not earning anything in investments who would be willing to loan a small amount to someone with, say, a %5 return on investment with the proper legalities taken care of. Nobody is making money keeping their funds in a bank anymore, are they?
I would recommend anyone needing parking space, or a small amount of suitable land, to put an ad in their local Craigslist and see what happens. There may be many kindred souls out there offering just what you’re in need of.
Donatella: The small town where I want to put a tiny home has regulations against homes without a foundation, no single wide trailers are allowed (except the old ones that were “grandfathered” in. To add to the frustration, the municipality will not allow anyone to live in their motorhome, not even in their driveway, for more than a few days (unless they go down to the local park and pay the camping fees). Other places that have small subdivision land open for sale have conveyances, even if they are really out in the sticks, there’s no one living there, and you don’t think that they would. Having conveyances means, they won’t allow you to build like you want, or keep pets or even four-wheelers in many cases. Good luck if you are going to just put up a privacy fence and hope no one notices?! You do have very tiny towns in very tiny municipalities, who are actually selling for $1 or giving away land … but this is so that they can bring in more residential housing to build up their community. You may be able to pass a tiny house through their board after much door knocking and hard work, but the communities trying this option to build up their community, are old-style residential, and it may be difficult to think out of the box for many of them to see what a benefit a tiny home might be for their community. Tiny homes benefit the home owner substantially … now we need to stretch our own pioneer spirit even more … what benefits can tiny homes offer communities so we can be welcomed?
My other comment is to offer a spark of an idea — a solution of sorts. while much land in Iowa where I live is extremely expensive … there are trailer parks … why not think bigger than just on your own,and band together to create a tiny park? It could be close to a town or city for convenience, out of city limits to avoid the regulations, offer extra tiny homes for camping, maybe even close to lakes or parks to make them more attractive and like attractions — part of the charm of the countryside — and bring in revenues to the local communties as people come to see how charming they are. I am so into this idea and have been for a long time, it is my dream in my retirement. I live in a very nice mobile home park now, and enjoy the park and my single wide mobile home very much, and I can see how this idea could spread nationwide. Tiny Home owners or wannabes need to think bigger!
LC, the idea of purchasing a mobile home or RV park and slowly converting it over to small homes has been brought up several times, it’s a great idea, especially if we were to help each other build our small homes. It just takes some capital, which seems to be lacking from most of the discussions I’ve read.
An additional, if not a bigger issue, is that a smaller home may be considered a nonconforming structure, and thus a nonconforming loan.
I have been interested in these tiny houses and been doing alot of research, finding where they might be acceptable, purchasing the right land, and most importantly is doing it all at the right price. This is where my research goes awry and leaves me with sour taste. I am finding that these tiny houses really are NOT a bargin afterall. They are still too pricey. For the price of one of these floor plans or the actually house the price is equivilent to a down payment on a regular house one would buy from a real estate agency. Still even for a tiny house a loan either for the land or the house still requires a loan so what is the point here for those who have no money at all even for a loan and can’t get a loan?? Yeah too bad cause i am on the bottom rung. I do keep trying and always will continue to search for ways these tiny house ideas can work for lower class people like myself so they too may actually live a decent life without having to spend such outrageous amounts of money to live in one of these.
It kinda makes you sad and feel defeated to know you can’t even live the way you want to if you don’t have the money or credit to buy into it.
Meanwhile, we are forced to rent and throw our money away to crappy landlords while we work jobs that don’t fulfill us. 🙁
I live in Northland, New Zealand, and have been following the Tiny House movement for some time.
I have a 10 acre lot, and wondered what our local rules about house size were, also contacted my friendly local Mortgage Officer.
1st, I contacted the local council:
Hi Ross
There is no set minimum size for a house size, and you can build 2 little dwelling next to each other i.e. not more that 15m apart. If you would like to build them further apart you are required to apply for a land use consent to get the permission from the Council to do so. You can also go onto our website http://www.wdc.govt.nz to check out our district plan rules and check out more information on your property in the environmental rules section.
Regards
Whitney Manjala
Customer Services Representative – Forum North | Whangarei District Council
Private Bag 9023 | Whangarei 0148 | http://www.wdc.govt.nz
P: 09 430 4230 ext 8778 | E: whitneym@wdc.govt.nz
And then I talked to the banker – and absolutely no problems with a mortgage as long as I have planning permission from the council!
So Northland is a great place to build small and tiny, although each council in NZ has it’s own zoning rules and regs so you must enquire to the council in which you plan to build.
Hi Ross, out of curiosity I typed in Northland, New Zealand into Google … What a beautiful place you live in.
That’s interesting where you say that it’s harder to get loans for smaller homes. I wouldn’t have thought those people would be more of a risk, even though the collateral amount is lower. That’s too bad because across the country there are more people looking for smaller houses because they don’t want as much space or bigger payments. I wonder if smaller banks would work with those people more.
I recently read an article from Yes magazine, written by Erika Lundahl, (posted 2/20/2014) about tiny houses for the homeless. I found this article very interesting and gave me hope that the tiny house movement is on the rise and that there will be a time when municipalities will become more accepting of tiny houses in their communities. Keep up the hard work that each of you are doing in trying to find a solution. I think we are on the cutting edge and it is going to take a while for everyone else to catch up. I will continue my research to find a way to make my tiny house dream come true. I have found craigslist to be a good place to find new and used building supplies in small quantities, just right for a tiny home. Most builders have left-overs that they are willing to part with. I would suggest that a person wanting to build their own tiny house to start there.
I really like how you talk about the different types of loans that you can get to build yourself a small home. My wife and I have been thinking of doing something like that in a more rural area and we think we would really like it. Hopefully, we can find a way to get ourselves the loan that we need so that we can start building right away.
My husband is thinking that paying the monthly rental fees for a property that wouldn’t be ours in the future is not practical for our growing family. I never knew that bank financing can provide up to $300,000 loan for strong borrowers with a high credit score. Moreover, I think I need to consult a real estate agent that can give us options that will work best for us since we want to have a secured home financing.
It’s good to know that an unsecured loan would be beneficial for a low amount. My wife and I are wanting to buy a tiny home. I’ll be sure to tell her that we should consider getting an unsecured loan for the small house.
Anyone could grab this opportunity when you don’t have enough budget of building your dream home. Make sure that when you purchase this kind of loan, you should also be aware of how to protect your private property.