Do People Really Live Mortgage-Free When They Own A Tiny House?

Imagine not having to pay your mortgage payment every month. You could pay off other debt, build up your savings, and even take more vacations if you didn't have that large payment to worry about. For some people, downsizing into a tiny home is one way to make that happen. If you've heard of people transforming buses or building tiny homes from the ground up, you may be wondering if they really are living mortgage-free.

First, what is a tiny home? Realtor.com says it's typically a house with 100 square feet to 400 square feet of living space, though some properties are larger than this. They could be on a permanent foundation or on wheels. Downsizing like this could mean giving up belongings and making significant changes in lifestyle. One question remains, though: Do those living in a tiny home not have a mortgage to pay? Of course, every case is different, but there are some key insights you should know.

It's true that many people living in tiny homes do not have a mortgage. For example, The Tiny Life reports that 68% of owners do not carry a mortgage on these properties. In contrast to that, just 29.3% of all U.S. homeowners are mortgage-free. They also note that 78% of people living in a tiny home own their property rather than renting, whereas only 65% of homeowners with traditional houses own their property.

Why is that? One reason is that tiny homes typically cost less. According to Earnest, mortgage lenders often do not offer tiny home mortgages because they are under the threshold they are willing to lend to. That's because these loans cannot be securitized, and which means that, unlike traditional mortgages, lenders cannot easily bundle these loans with others and sell them as mortgage-backed securities to investors. In other words, many people who own a tiny home cannot obtain a mortgage to build one because these loans are not easily available.

So, how do you cover the cost of your tiny home if you can't get a mortgage? For some people, the answer would be using savings to help purchase the place and the property on it, if necessary. Rocket Mortgage points out that several other types of loans may be available to well-qualified borrowers to help with the purchase or conversion process, including personal loans, which often are available based on credit scores and income. Also, if the vehicle is on wheels, an RV loan may also work as an option. Contractor and builder financing are additional alternatives for those building a tiny home.

Considering the average cost of building a tiny home ranges between $40,000 and $80,000, according to Fixr, some people may just need to save up to make their purchase. That's especially true when you also need to buy the real estate the tiny home sits on.