4 ms·

It's fascinating to see innovation in this space. I am also curious to see how the mortgage and realtor industry responds to this type of demand in the future.

by avelis 11y ago

SwellJoe 11y ago
As noted in the article, the current mortgage situation isn't good at all. I wanted to buy land a couple of years ago, to build a tiny house on. I went in willing/able to put a 30-40% down payment on the property, with plans to build my own tiny house completely self-funded over the next year or so. The banks were simply not at all equipped to address that. Despite my excellent credit (high 700s) and low debt, and the cash to make the down payment and good income, they made it clear that I would be able to get a loan on a regular sized house with much less money down, but would not be able to get a loan on just a piece of land with plans to put a tiny house on it. They were also willing to talk about loaning money for the land, if I could show how I was going to afford to build a "regular" house on the property (requiring going through a builder and getting a loan on the future house). In short, the was no way, short of paying for the property entirely out of pocket I would be able to buy land and build my own tiny house on it. It was incredibly frustrating. I mean, I'm talking to these folks and they are, with a straight face, saying, "Well, as a first time home buyer, you could put 5%-15% down and buy a house, with the bank loaning you the other ~$160,000." And, I'd say, "OK, but what if I put $25,000 down, and only borrow $50,000 from the bank, and buy a piece of land, and over the next year I build myself a house on that land." And, they'd reply, "That's just not gonna happen." So, several banks would have been happy to loan me $160k with $16k down on a full-sized house, but no one was willing to loan me $50k with $25k down on land for a tiny house. I gave up on buying at that time. Will save up and pay cash for a plot of land in another year or two, and build my tiny house then. I doubt it will change any time soon. Home builders have no motivation to build smaller, banks have no interest in betting on self-built homes. Which is understandable to some degree...but, the sheer hardheadedness of the response was really surprising, to me. I'd always assumed I would have no trouble getting whatever kind of loan I wanted, as long as I brought enough cash to the table. But, for land-only deals, many banks want to see 50% or more down payment, which is silly. So, tiny houses remain mostly the privilege of those wealthy enough to afford to buy land without a mortgage, or those who don't mind living in places where land is very, very cheap. It's also possible to park a tiny house in a trailer park or RV park (and I know some folks who do that), but that misses the point of home ownership, for me.
- techsupporter 11y ago
  If you're interested in knowing why, it's because mortgages are sold as securities these days (and have been since before the Big Collapse). If your mortgage is significantly not like the other mortgages, it can't be bundled and sold into the pool of other securitized mortgages. That means your lender has to carry the note itself and the overwhelming majority of lenders--banks and brokers--don't do that. The other problem: banks need a property that, if foreclosed upon, can be sold to recoup their investment. A friend of mine is having this exact problem. He has a house that could withstand a bomb being dropped on it but it is built to his preferences and the banks he has visited to inquire about refinancing have all said that a sale would be difficult. Too risky to use as collateral since they can't be relatively certain of recovering against loss. What you're looking for is a "portfolio loan," where the financial institution keeps your loan on its own books. Some credit unions do this (mine does) in situations like yours. The interest will be commensurate with the credit union's guess of how easy your property will be to resell (both in the opinion of the underwriter and of the outside, independent appraiser) to pay for the risk but it can be done.
  - SwellJoe 11y ago
    Thanks for the explanation, and it mirrors the explanation I got from the loan officer at my credit union. On this point: "What you're looking for is a "portfolio loan," where the financial institution keeps your loan on its own books. Some credit unions do this (mine does) in situations like yours. The interest will be commensurate with the credit union's guess of how easy your property will be to resell (both in the opinion of the underwriter and of the outside, independent appraiser) to pay for the risk but it can be done." It was the credit union that said, "We could maybe get you a loan on the land if you can put 50% down." The bank I've been using for 20 years flat out said "no way, we only do land loans for businesses for new construction, and they have to have a plan and funding lined up to complete the construction". It all seems vaguely rotten and corrupt, to me...but, well, I don't know the motivation for it. I'll just keep saving, and pay cash. Or maybe I'll buy land where it's cheaper. Maybe I won't always value living within biking distance of a city with good live music as highly as I do now.

It's fascinating to see innovation in this space. I am also curious to see how the mortgage and realtor industry responds to this type of demand in the future.

by avelis 11y ago

It's fascinating to see innovation in this space. I am also curious to see how the mortgage and realtor industry responds to this type of demand in the future.

SwellJoe 11y ago

As noted in the article, the current mortgage situation isn't good at all. I wanted to buy land a couple of years ago, to build a tiny house on. I went in willing/able to put a 30-40% down payment on the property, with plans to build my own tiny house completely self-funded over the next year or so. The banks were simply not at all equipped to address that. Despite my excellent credit (high 700s) and low debt, and the cash to make the down payment and good income, they made it clear that I would be able to get a loan on a regular sized house with much less money down, but would not be able to get a loan on just a piece of land with plans to put a tiny house on it. They were also willing to talk about loaning money for the land, if I could show how I was going to afford to build a "regular" house on the property (requiring going through a builder and getting a loan on the future house). In short, the was no way, short of paying for the property entirely out of pocket I would be able to buy land and build my own tiny house on it. It was incredibly frustrating. I mean, I'm talking to these folks and they are, with a straight face, saying, "Well, as a first time home buyer, you could put 5%-15% down and buy a house, with the bank loaning you the other ~$160,000." And, I'd say, "OK, but what if I put $25,000 down, and only borrow $50,000 from the bank, and buy a piece of land, and over the next year I build myself a house on that land." And, they'd reply, "That's just not gonna happen." So, several banks would have been happy to loan me $160k with $16k down on a full-sized house, but no one was willing to loan me $50k with $25k down on land for a tiny house. I gave up on buying at that time. Will save up and pay cash for a plot of land in another year or two, and build my tiny house then. I doubt it will change any time soon. Home builders have no motivation to build smaller, banks have no interest in betting on self-built homes. Which is understandable to some degree...but, the sheer hardheadedness of the response was really surprising, to me. I'd always assumed I would have no trouble getting whatever kind of loan I wanted, as long as I brought enough cash to the table. But, for land-only deals, many banks want to see 50% or more down payment, which is silly. So, tiny houses remain mostly the privilege of those wealthy enough to afford to buy land without a mortgage, or those who don't mind living in places where land is very, very cheap. It's also possible to park a tiny house in a trailer park or RV park (and I know some folks who do that), but that misses the point of home ownership, for me.

techsupporter 11y ago
If you're interested in knowing why, it's because mortgages are sold as securities these days (and have been since before the Big Collapse). If your mortgage is significantly not like the other mortgages, it can't be bundled and sold into the pool of other securitized mortgages. That means your lender has to carry the note itself and the overwhelming majority of lenders--banks and brokers--don't do that. The other problem: banks need a property that, if foreclosed upon, can be sold to recoup their investment. A friend of mine is having this exact problem. He has a house that could withstand a bomb being dropped on it but it is built to his preferences and the banks he has visited to inquire about refinancing have all said that a sale would be difficult. Too risky to use as collateral since they can't be relatively certain of recovering against loss. What you're looking for is a "portfolio loan," where the financial institution keeps your loan on its own books. Some credit unions do this (mine does) in situations like yours. The interest will be commensurate with the credit union's guess of how easy your property will be to resell (both in the opinion of the underwriter and of the outside, independent appraiser) to pay for the risk but it can be done.
- SwellJoe 11y ago
  Thanks for the explanation, and it mirrors the explanation I got from the loan officer at my credit union. On this point: "What you're looking for is a "portfolio loan," where the financial institution keeps your loan on its own books. Some credit unions do this (mine does) in situations like yours. The interest will be commensurate with the credit union's guess of how easy your property will be to resell (both in the opinion of the underwriter and of the outside, independent appraiser) to pay for the risk but it can be done." It was the credit union that said, "We could maybe get you a loan on the land if you can put 50% down." The bank I've been using for 20 years flat out said "no way, we only do land loans for businesses for new construction, and they have to have a plan and funding lined up to complete the construction". It all seems vaguely rotten and corrupt, to me...but, well, I don't know the motivation for it. I'll just keep saving, and pay cash. Or maybe I'll buy land where it's cheaper. Maybe I won't always value living within biking distance of a city with good live music as highly as I do now.