How to Live Mortgage Free in a Tiny House
If you have dreamed of living mortgage free, but don’t know if you can pay off the note on your current home, there’s a solution you may want to consider – especially if you have more space than you need.
Many people are trading in their large homes and mortgages for a debt-free tiny house. The Tiny House Movement, a social and economic trend aimed at building smaller homes, has made this kind of housing very popular. It’s a way for homeowners to downsize and free themselves up financially to do more of what they enjoy, such as traveling, volunteering or starting up a business from home.
Reality shows such as “Tiny House Nation” and “Tiny House Hunters” have made it even more attractive. Here’s what you need to know if you want to jump on this trend.
Options for Your Current Home
If you own your home and you’re thinking of scaling down, you’ll need to decide what to do with your current home. If you have the funds to pay cash for land and a new tiny house, you may want to keep your larger home and rent it out to generate additional income. However, this may not be an option if you have a mortgage on your home, as the mortgage lender may not allow a homeowner to rent his or her home.
Alternatively, you could sell, which is a good way to generate the cash to build a tiny home, mortgage free.
How Low Should You Go?
Your first order of business will be determining the size of house that’s right for you. People within the Tiny House Movement define “tiny” as anywhere from 82 square feet to generally no larger than 500 square feet. One method that can help you decide what feels right is to close off spare rooms in your home to see if you and your family really use them. Or try renting a small vacation cabin or go camping for a period of time and make note of what household items you actually use.
Once you’ve determined the size of house you need, the next step is to examine your budget to find out if you have enough money to buy a home and land without a mortgage. These diminutive houses can cost anywhere from $10,000 for a very basic home designed to sit on a trailer to more than $100,000 for a custom-built, luxury tiny home. (See Financial Considerations of Buying a Tiny House for more on costs, financing and builders.)
Tiny homes on trailers are generally no larger than 160 square feet with height maximums that allow them to be towed and to clear overpasses. Though they are compared to RVs, there are a number of differences: For instance, they are constructed from higher-quality building materials and insulation that’s made to last, similar to that of a standard fixed-foundation home.
Whether on a trailer or set in a fixed foundation, some of these homes are built to run off-grid, with solar panels to generate electricity, rainwater catchment systems and composting toilets. Others are designed to hook up to permanent electric and water sources.
Where to Park or Build
The type of tiny home you choose may depend on where you can purchase land to park or build legally. The phenomenon is so new that many counties, towns and cities don’t know how to classify tiny homes on trailers. They are sometimes classified as RVs, which, in some jurisdictions, makes them illegal to live in full time. Sometimes, local laws allow them to be parked in RV or trailer parks.
Building a fixed-foundation tiny home may not be an easier proposition if a town has minimum square footage requirements on new construction. Walnut Ridge, Ark., for example, recently passed an ordinance banning new home construction under 600 square feet.
Codes and ordinances are the reason many tiny homes are located in unincorporated areas of rural counties. When looking to purchase land online or through a real estate agent, it is always prudent to check local building codes, as even rural areas can have restrictions, such as the requirement that a home be hooked up to a permanent water source and sewage draining system.
Rent or Barter?
Many people in their 40s, 50s and 60s are choosing to downsize and build what’s known as an accessory dwelling unit (ADU) in the backyard of their homes. They move into these houses and rent the big house – or they rent the ADU, often to close friends, children or other relatives. This way of living can do a good job of supporting multigenerational housing. (See New Retirement Living Option – And Income Source for more on the benefits of an ADU.) The codes and ordinances have to be vetted carefully.
Whether they live in an ADU on someone else's land or park a trailer-based small house there, people are finding they can further cut their costs – and help the homeowners in the larger home – by bartering instead of paying cash for the rent of the land on which the tiny house sits. Ideas for bartering include doing house or yard work, childcare and even preparing meals for the landowner. For tiny-house homeowners on a tight budget, this arrangement allows them to make their downsizing dreams a reality while not having the expense of purchasing land. An added benefit can be being near loved ones.
The Bottom Line
By doing research on the size of home you need, accurately calculating your budget, and fully investigating codes and ordinances, you could find that a tiny house is the answer to living mortgage free.