Friday, December 18, 2015

My Tiny House Loan


Lets talk about loans. This is how I bought Fy Nyth. I've had several requests for details on how that whole process worked for me, and while I've mentioned some of it several times, I realized I never did a post just dedicated to that topic. So this is that post.

When I decided I was going to buy a tiny house in the summer of 2014, I had only a few hundred dollars in savings. Not enough to buy a house, no matter how tiny. Well maybe a doghouse... I also had no credit. Not bad credit mind you, just none at all. I generally do not like debt. I prefer to not owe anyone anything. So I have always paid for everything in my life with cash and do not have a credit card. This translates into not having a credit score.

I was looking for a loan however. Sure, I could have kept renting for years and saved up for a house. And generally that is the route I would have gone. But I live in an area where rents have sky rocketed in the last few years and this is what was making me choose to go tiny to start with. Sure, I could have moved, but this place is home to me. It's where my friends, community, and jobs are. And I didn't want to leave if I could avoid it. Paying rent around $1100 for a bedroom, on my income, would not have left me much of anything to save. There is a 400 square foot house for sale in the area right now on a small lot listed at $1,100,000.00. Yup, that's the land value here. I was clearly never going to buy a "normal" home in this area.



I chose to buy a prebuilt tiny house for several reasons. Mostly that I needed a new place to live in about a month thanks to my long term rental being sold and the above mentioned current rental prices for anything else. And that while I am pretty sure I could learn how to build a house, that is not a set of skills I currently posses. So after thinking about it, I decided that paying some interest on a loan would actually come out ahead in the end compared to my other options. So I shopped the limited number of builders that existed at the time (there are quite a few more now), settled on Tumbleweed and now I was looking for a way to get an RV loan since they are certified as RV manufacturers.

First I gave my local bank of many years a try even though I knew most regular banks didn't do RV loans on tinys. They basically were not interested and said so. After have read up on the topic a bit, I decided to try our local credit union. We only have one credit union operating in this little town and they accepted me as a member thanks to one of my employers being part of their pool. And they gave me a loan for almost the whole total. And as a side note, the credit union now gets almost all my business rather than my old bank!

When I first talked to them about a loan, I warned the lady about my total lack of credit history and said my sister had agreed to cosign if needed. This was very generous on the part of my one younger sister with a high paying nursing job and her computer programer husband. First my loan officer said she'd check to see if I could qualify on my own, but it only took her a few seconds on the computer to come back to the cosigner idea! Generally I do not like the idea of a cosigner or tangling up other people in money affairs. And while money issues can come between even the closest of friends or family members, my sister is someone I really trust. And I was pretty confident that paying it back without it ever becoming a bother to them would be well within my capabilities. After all my loan payment was going to be just over half of what I had been paying in rent for years. So we went with that option. 

My loan officer was a terrific lady who really went to bat for me on an idea that was pretty unfamiliar to the whole company. I am so thankful for her. I don't think she or anyone working at the credit union had really even heard of tiny houses before, much less been asked for a loan for one. After doing a lot of her own reading and talking to Tumbleweed multiple times, she said she'd do it! Perfect. In the mean time while waiting to hear that news, I'd got my house plans all worked out with Tumbleweed and they were ready to go. 

I borrowed what to a never-go-in-debt-or-owe-anyone person seemed like a huge amount! $74,010. I also paid a down payment, the delivery charge, sales tax to the DMV (6% here, which ends up being a lot of money on that total!) as well as buying my solar setup all in cash. Total for everything came to right around $88,500. That was for a fully finished home customized home with all the appliances etc and a large kitchen built in. This is a lot of money, and I'm sure some of you live in areas where you can buy a small farm for that amount. But for the reasons discussed earlier, I still think it was a good choice for me in my situation. Remember that small house on a tiny lot for sale here for $1,100,000.00? 



Also, if you are going to ask how I paid for all that stuff in cash when I said at the start that I had only a few hundred in savings, this is the answer. I sold a ton of stuff I owned as I rapidly downsized all my stuff to fit in a tiny house. Some of those costs were spread over two months so I worked a ton during that time and saved every penny. When my rental lease ran out, I got back my deposit on that place which was substantial. All that gave me the cash for a down payment, the delivery charge, sales tax, and my solar setup.

What I ended up with was a 15 year RV loan at 4.75% interest. There are none of those mortgage type write-offs and benefits that you get when buying a "normal" house when you get an RV loan, so be aware of that if you are thinking about going this route. My payments came out to $576 a month. About half of what renting a bedroom in this area would cost, so that seemed very doable to me. If I took a full 15 years to pay this off, I'd spend about $29,600 in interest on top of my total purchase price. Much better than your average mortgage where by the time you pay it off you will have paid nearly double the amount the house was bought for. Think paying a total of $375,000 for a house that was sold for $200,000. So while much better than a traditional mortgage, that is still a ton of money to spend on interest! It is more than fair to pay interest on someone else's money since they are letting me use it and I didn't have it on my own. But I don't care to pay any more in interest than I absolutely have to. 


So I have been paying a lot of extra to the principle every month. If you do get a loan, make sure they will let you pay down the principle without extra charges to do so. Every extra penny you can throw at a loan right from the start will save you a LOT of interest over the whole life of the loan since you start by paying most of the interest and by the end most of your money is actually going to the principle anyway. My current payment rate for example will save me over $20,000 in interest verse. just paying the required amount every month over the full 15 years. That's huge! In the first year, I paid about a quarter of the whole total off. 

I've also worked a lot in the last year to make this happen. I picked up several new odds and ends of jobs to help raise my income. I spent almost no time backpacking, reading, or doing some of my other favorite leisure activities. I pretty much only buy gas, propane, groceries, and pay down my loan right now. I have a very cheap prepaid flip phone. I drive a 21 year old van with well over 200,000 miles on it and only carry liability insurance since it's nearly worthless anyway. I don't go out to eat or watch movies unless someone else wants to take me out, (I know, I'm a woman, this probably means no dinners or movies ever if you are a guy, but they are pretty rare even for me - I'm working all the time.). I don't pay for TV. I don't buy new clothes. I grow most of my own food. I barter food and work for other things I want like maintenance, plowing, and a gym membership. I  buy almost no alcohol/coffee/anything liquid that's not water to drink. At this rate I will be debt free again in less than three years though! 

And while to some of you, that above list of things may sound like a terrible amount of hardship, it's really not for me. In fact, much of it was the way I chose to live long before going tiny. Those choices are what allowed me to do low paying jobs that I loved and not be in debt. I like my flip phone, smart phones confuse me. I love my old van that has AWD and can go through massive amounts of snow, all while holding most of my outdoor gear and two full length beds. Generally I enjoy cooking my own dinner and reading a book much more than a dinner out and a movie though that's nice every now and then. I prefer not to watch TV,  because I feel like it's killing my brain cells ever time I do. Usually I'm more likely to find clothes I like at a thrift store than a new stuff store. I love gardening. 

Plus in about three years I expect to be debt free again, own my own tiny house, and virtually not be paying anything for my housing. That is huge! I do trade work for my house parking, but that does not cost me money. Imagine what you could do if your expenses did not include any debt, rent, or house payments! What portion of your take home income do those things use up for you? People are drawn to tiny houses for many reasons, but this is a pretty big one for many of us. Since I will own my own home, and it's on wheels, I am also free to decide I no longer want to live here after all and hitch up and go where ever else. Or sell it. Or whatever else. All these things are pretty sweet.



I actually now plan to "retire" in three years. Something I never thought about before going tiny. No I don't mean go sit on a beach or play golf or something. I don't enjoy those things anyway. I mean generally, not longer doing work I don't enjoy, work at times I don't like (5am? No way. I'm naturally a night owl even though I've done early mornings for years now.) or work for people I do not enjoy being around. In fact I plan to still work hard, just doing things I do like. Like gardening for myself and some others. Some general maintenance or cleaning for a few good people, both of which are kind of satisfying projects for me. Chopping firewood which I really enjoy. Maybe cooking for more people or selling produce. Maybe pursuing photography and even selling photos in some form. And so on. 

Nope. I won't ever get rich this way. But what does being rich get anyone other than the time and resources to do what they want? To do work I find fulfilling, to watch things grow, to prepare beautiful, tasty, and nutritious food, to read a good book, to watch a sunset or a baby coyote, to go backpack in the mountains for a week or more, to sit by a fire and talk to a good friend: these are the things I want. I guess I am a real case of "That man is richest whose pleasures are the cheapest." - Thoreau. None of this may sound good to you at all, but this is what I enjoy so why would I want to spend my life working at other things I don't enjoy? For what? If I have a house to live in, food, and clothing, and some leisure, I'm pretty sure I am in the wealthiest one percent of humans that have ever lived on this planet. If I can keep a modest income flowing from some of these pleasurable activities, have enough for myself and a little to share, what would I want with more? 


Please note that I am not saying no one else should want other things or that people who have more of those things than me are bad. I have a sister and bro-in-law who make way more than I ever will and they are so generous with others. Doing and buying things for them like homes and cars that I will likely never be able to do. I admire what they do, but I'm also content with what I do.

I am not trying to tell anyone how to go about their own tiny house, just sharing my experience with my loan in case it's helpful to someone else. I know this post has a lot of numbers in it. To the best of my ability I got them all correct. My thoughts on why I made the choices I have, I shared in case that helps one of you think about what you really want or value in life and how that can be achieved possibly in a more out-of-the-box way than you had previously thought, even if your dreams and future do not include a tiny house.

I have now lived here in Fy Nyth for over a year and love it. For the record, I would do exactly the same thing again if I had that choice to make.


P.S. If you are exploring this whole issue of needing a loan, you might also want to check out www.tinyhouselending.com. I have personally met Kai the man behind this, and he's a great guy, but I have no affiliation with his site. I have not worked with him on a loan since I already had mine, so I do not have personal experience with that. He does not personally give loans, but works with lenders to familiarize them with this market and connect people in need of a loan to businesses willing to to lend. I understand he now has several lenders who understand this whole tiny house thing and are willing to work with us. I think at least some of them work with houses that are not being built buy RV certified builders and with DYI ones. This is pretty cool and I would have probably pursued this option had it existed when I bought my house.



35 comments:

  1. Thank you for sharing some fantastic information. My hat's off to you for being so young and so mature at the same time. It's truly refreshing in todays' world.

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    1. Thanks. I will admit, I don't spend much time with folks my age. I tend to find we have little in common.

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  2. All well presented with great insights, Ariel. Thank you so much for sharing your personal experience with tiny home purchasing. It's wonderful to hear that you are so content with your home and life. Happy Holidays, Ardith

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    1. Thank you. I hope you are as content in your living situation!

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  3. When I was looking for loan places, a credit union accepted us when banks did not. The company that built our house was not RV certified, so we ended up taking out a personal loan for $30k. Our loan approval process was not instant and actually got denied a few times based on the fact that we had no loan history, even through our credit scores were on the high end of excellent. We ended up having to go before a loan review board and told them that this loan was our mortgage and they approved us instantly. They also didn't know much about tiny houses.

    Hopefully this process will get easier for people in the future!

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    1. Agreed! I'm glad you were able to work through the process too. And it's good to know that a route like that can be an option as well.

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  4. Ariel, thank you for being so candid and willing to share this information, some of which is quite personal. Your comment about the interest is correct; we paid $77,000 for our 1600 square foot home in 1983, our mortgage is now paid off, and we've paid over $200,000 total in principal and interest over 30 years, and we could never sell our house for that much. That's not even counting taxes, insurance, utilities and maintenance! You've got your priorities straight, and I applaud you for that! Best wishes for a peaceful holiday season!

    C. Needham, Texas

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    1. Thanks for the affirmation. I find it sad how few in my generation seem to understand how things like interest work. I actually had a crazy busy holiday season, but now am getting some relaxation in which is very nice.

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  5. Well done Ariel. I look forward to my arrival in your area with my tiny home. Once I arrive, I can help you with the desire to do prof. photography; at least photography of wildlife and scenics. On average, I sell 1100 images a year, it is not a big income but it is nice to earn without any effort.

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    1. I would love that Moose and can't wait to meet in person!

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  6. Excellent post, Ariel! Good reminder of the importance of simple living, and right in time for the holidays. Thanks for sharing these details and your great blog posts!

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  7. I really love reading your posts. I envy your lifestyle and the freedom. But I do have to be a bit of a worrier and ask you, what about health care and retirement? I know it must seem like it's far far away...

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    1. Thank you for your concern. Personally, I consider my garden, food choices, and exercise to be my health care plan. Hence the amount of time and money I am willing to invest in those things. And I do have some savings in case of emergencies.

      Retirement, I'm planning on heading into in about three years, once my house is paid off. I'll keep working at things I enjoy like gardening, but that should be more than enough to live on and keep saving a little.

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  8. Thanks for sharing all the details! It can be so hard to get real information about tiny house living. It doesn't make it easy to share when half the people attack you for spending more than they think you should.

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    1. You are welcome! I'm glad they are helpful to others. And when others differ so strongly in their opinions, I just think "we must have very different goals." Doesn't really both me.

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  9. I am so impressed and I thank you for all of the great information. Where are you located specifically what state in the United States or Canada? Do you pay lot rent and are you on land you own or in an RV park? We also want a way 2 burn wood for heat if possible and would love some advice on heat and air conditioning sources. Yes I certainly do have lots of questions!

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    1. I live in the mountains of northern Wyoming. See this post for info on my parking setup. http://fynyth.blogspot.com/2015/07/finding-home-for-your-tiny-house.html. If you check out the "House Systems & Utilities" page at the top, you will find quite a few posts on wood heat as well. And you are welcome!

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  10. Wonderful and inspirational share. We are currently paying on an RV loan, but this does give us hope that we may be able to finance a TH in the future. Side note: talk to a tax advisor, but you may be able to deduct the loan interest on your home because it is used to secure your primary residence. You would have to itemize your deductions, and they might not exceed the standard deduction anyway, but just FYI

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    1. Wonderful! It's always nice to hear that someone else is more hopeful!

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    2. Mortgage interest on a "second" home is deductible, even the home is an RV. See the IRS publication 936 for the details. https://www.irs.gov/publications/p936/ar02.html. You may be able to file amended returns for the previous years. Note, however, this works if you itemize your deductions ... and your photographic expenses (travel, equipment, courses) may also be deducible.

      Cecil

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  11. I have viewed some of your videos and just found your blog. There is so much to be impressed with I'll just end by saying what you are doing is remarkable. Thanks for sharing.

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  12. Love this piece! Question-was your tiny house built in the DMV? Did you have trouble finding land to park it on or better yet, what did you do after it was delivered? Reason I ask is because I am in the DMV and they are not very tiny house friendly currently.

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    1. I'm not sure I totally understand your question. The DMV as in the department of motor vehicles? My house was built in Colorado and I live in it in Wyoming. See this post for more on how I found a parking spot.

      http://fynyth.blogspot.com/2015/07/finding-home-for-your-tiny-house.html

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  13. Hi Ariel, I love your videos and this post too!! I live in MD and they are not very tiny house friendly, the same with DC and VA (DMV). I really admire your simple and honest living. Please keep posting more videos!! :)

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  14. This is truly a great read for me. I have bookmarked it and I am looking forward to reading new articles. Keep up the good work!. Progressive Insurance Brandon FL

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  15. I thought you could buy a tiny house with no mortgage?

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    1. You can! Depending on how much cash you have and how you choose to build your house.

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  16. Hi Ariel!

    Jake here with Tiny Life Supply. Here is the link to our tiny house research hub I was telling you about:

    https://tinylifesupply.com/resource-hub/tiny-house

    We will be updating the hub periodically so any feedback you have is welcome. Great meeting you the other day!

    Jake

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    1. Hi Ariel,
      I like your post and your videos. You really have your priorities set and a smart head on your shoulders. I wish I'd have been that smart when I was your age. I'm a 46 yr old disabled mother and wife. We're going to do a tiny house when our son graduates high school. Why keep putting our limited funds in our landlord's pocket when we can own a tiny house and hopefully a little bit of land? I'm glad you'll have yours paid off soon. I like that you've chosen to live simply. We have too, but then we've been forced to- my me and my husband are disabled. We live 50 miles east of Colorado Springs in a small country town called Simla (about 700 people.) I'd have loved to gardened for my food, but we have too many wild turkeys, geese and antelope who wander through our yard- they'll eat anything if they eat our weeds and wild grass. So, I'll stick to the herbs that I grow in my kitchen window, get the free day old bread from our local thrift store, and I volunteer there and get paid by store coupons. If my family needs anything like clothes or household odds and ends, I just use the store coupons on them. Plus volunteering I get to meet people and then my brain doesn't feel like a waste of mushiness- I'm actually using my brain cells. Oh and we can't afford to go to the movies, but we do watch movies online at Pureflix (kind of like Netflix, but Christian, wholesome movies.) We also download our own music into cheap MP3 players from Youtube by converting the movies to MP3 format.
      Anyways BIG KUDOS by not wasting your money and EVEN MORE KUDOS for being able to retire soon!! Very happy for you!!

      Mel and Tom Durham

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  17. You are so unique and intelligent. I recommend you check with a credible tax adviser (or 3) as a primary or second residence that is an RV qualifies for mortgage interest tax credit.

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