Like many millennials, my wife and I don’t want a big house. But that’s all we can get a loan for.
Recently, I was speaking to a residential builder who owns a family business that has built homes all over Seattle for more than 100 years. I assumed that, being entrenched in the community for such a long time, he could get a loan for just about anything with a furnace and a refrigerator. We were talking about the tiny-home trend when he gave me the bad news: “I can’t build them, and you can’t buy one—because neither of us can get loans for them.”
The problem is tiny homes, typically less than 500 square feet, won’t appraise. There aren’t enough of them out there for lenders to determine reliable appraisals based on comps. And lenders won’t finance a project without an appraisal. Small homes do exist, but not many really small ones. Most lenders, in fact, will only finance homes that are no smaller than 40 to 80 percent of the size of a comparable, nearby home. In my market, that means buyers can’t go much smaller than 1,500 square feet for a single-family home. In order to buy, you have to go bigger.
But my wife, Kali, and I don’t want something bigger. We want something cooler: high ceilings, industrial floors, two bedrooms, and a garage big enough to store our adventure toys. We don’t need more than maybe 700 square feet to achieve this. We qualify for a loan, and we are ready to wire the money for a down payment straight into a willing bank’s pocket. But our dream doesn’t meet the bank’s standards, and it seems like none of our friends’ dreams do either.
We (millennials and Generation Xers) make up more than half of home buyers—61 percent, according to the National Association of REALTORS®’ 2016 Home Buyer and Seller Generational Trends Report. So it’s time for banks to start lending legitimacy to the way we live. We’re a generation on the go and rarely at home. And when we are, we don’t want to be cleaning 14 bedrooms and mowing a lawn.
Why not buy a condo, you ask? My wife and I live in a 560-square-foot condo now, and we love it. But at some point, we want to grow up—only a little bit—and have a house that’s not too big for our needs. Most of the smaller housing stock in the U.S. was built in the 1940s and ’50s. These houses feel like bunkers, and that’s not good enough for us. We want small but sexy, and most of all, we don’t want to be wasteful.
Read Jeanne E. Arnold’s Life at Home in the Twenty-First Century: 32 Families Open Their Doors to learn just how much home people squander. The author found that we use our kitchens constantly while the rest of the house catches cobwebs we have to clean after a 10-hour workday and 60-minute commute.
Underwriters want to see home structures that are two to four times more valuable than the land. This is to say, if you have a $200,000 lot, they want you to build a structure that costs $400,000 to $800,000. Here are the problems with that logic in areas like mine: First, there are more lions than $200,000 lots in Seattle. Second, what millennial wants a mansion? Most of us don’t buy those big houses until we have kids, and then we just end up complaining about them until we downsize.
So why do these ratios for lending exist? That’s my question. Loosen them up, and I know at least three people—my wife and I, plus a great builder—who will pay you for a tiny home. And then we will sell it to one of the many others looking for tiny homes. Lenders, you know where to find me when you change your mind.
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