6 Financial Resolutions for the New Year
Sure, with many 2,000-plus square feet homes requiring an upfront chunk of more than $50,000, it’s easy to see why so many young people are saying “no thanks.” Coming of age in the wake of the housing bust, millennials have a more open-eyed approach to their needs and want, and they want a lifestyle free of unnecessary debt and obligations.
But consider the small house: it’s more affordable, easier to maintain, and you own it.
Every payment you make to pay back your home loan goes to you—not a landlord. Buying a smaller house may be more affordable, in fact, than paying rent. And as young people get creative and look toward the benefits of simpler living and the future of the housing market—the tiny house is having a moment.
In addition to a lower down payment, lower mortgage payments, and lower property taxes, small houses require less time to maintain and may be easier to sell one day, particularly if they are built in an energy-efficient manner.
Smaller homes lead to a more integrated family lifestyle and free up money for travel or student debt elimination. They can enrich the community by creating opportunities for exchanges of everything from camping gear, to tools, to space, to lend.
Some young adults are even going beyond small and finding happiness in tiny homes—think 100 square feet to 300 square feet.
Jamie Hoppe, former mortgage lending manager at UW Credit Union in Madison, Wis., financed several homes of less than 800 square feet.
Hoppe says every loan is reviewed on a case-by-case basis, but that very small homes can qualify for conventional home loans if there is a viable market for them. “These are typically located in neighborhoods where there are multiple smaller dwellings that have established values,” he says.
Hoppe says that when conventional financing is not available (for example, with mobile homes), other loan programs are available through your credit union that can accommodate a unique property. These loans, he notes, are typically adjustable-rate loans and may require higher down payments for well-qualified buyers.
Even so, this higher down payment as a percentage of the total value of the property will likely be considerably smaller than a 20% down payment on a larger dwelling.
According to a survey conducted by the website The Tiny Life, founded by Ryan Mitchell in Charlotte, N.C., 68% of those with truly tiny homes have no mortgage at all. The average cost to build a tiny house is between $10,000 to $40,000 if you build it yourself, double that if you hire a builder.
Some people rent plots of land on which to build their houses. Others live in accessory dwellings on land owned by friends and family.
If you opt to buy a slightly older small home instead of building your own dwelling, take care to learn about any needed updates first. Pay for a good inspection and budget for maintenance and upgrades.
Well-designed storage and versatile furnishings will be your friend in a small home. Think ahead to how you’ll handle guests and if there is good outdoor space for entertaining.
Ryan Donovan, a millennial real estate agent in Burlington, Vt., is definitely aware of the trend toward smaller living. “Nearly every millennial-aged buyer who comes to me says, ‘I’m approved for this much, but I only want to spend this much. That’s all I need.’ We are much more focused on ‘how much do I need?’ than on ‘how much can I get?'”
Small homes help millennials create a life richer with experiences than material things and help reduce their carbon footprint. These values, combined with a desire for community and lower stress levels, leave small homes looking better and better in the eyes of many young buyers.
Laura Schaefer is a freelance writer and author of The Teashop Girls. Follow her on Twitter: @teashopgirl.
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