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Buying a house can be expensive, and many people are not able to pay cash to do it. In fact, it is very common for property owners to have a mortgage loan. These loans can be large ones, with the average mortgage balance coming in at $220,380 in 2021, according to data from Experian, a credit reporting agency.
Committing to a mortgage loan totaling hundreds of thousands of dollars can leave you with a large monthly payment and a lot less flexibility with regard to what you can do with your hard-earned money. But there's one group of people who may not have to worry about that: tiny homeowners.
Most owners of tiny homes are mortgage-free
Although many homeowners have to take out loans to purchase their homes, mortgages are far less common among people who own tiny houses rather than more traditional properties.
In fact, Comfy Living reports that 68% of people who live in tiny homes own them free and clear without a loan on the property.
A tiny home is typically defined as one that is less than 400 square feet. Its smaller size means it costs less to build or buy. And the ongoing expenses are much lower as well. Housing expenses could be as low as $600 per month, Comfy Living reports. This is a big reason why 55% of owners of tiny homes have more than the average amount of savings. Modest tiny homes could be built for around $25,000, while those with DIY talent could create theirs for around $12,000 to $35,000.
Housing costs tend to be a significant monthly expenditure for most people after factoring in not just mortgage principal and interest, but also insurance, property taxes, and utilities. With a tiny home, all of these costs are much lower, as are maintenance expenses and furniture purchases.
By scaling down the size of their homes, in other words, tiny homeowners get to enjoy a much cheaper lifestyle than owners of standard properties.
Should you consider a tiny home to avoid a mortgage loan?
Passing up a mortgage may seem very attractive but tiny home living is not the right choice for everyone.
The most obvious drawback is that you're going to need to cope with having a lot less space than the typical house would provide. If you have a larger family, value your privacy from your living companions, want space for hobbies, or have many possessions you need to store, a tiny home may not be the best option.
Some cities also have restrictive zoning laws that can make it difficult to find a place for your tiny home. And if your tiny home was once a mobile or manufactured home, some evidence suggests that these types of properties generally don't benefit from the same level of property appreciation as traditional stick-built homes.
Ultimately, you'll need to consider if you can really be happy in under 400 square feet, and if you can find a tiny home to live in (or a lot to build one on) in your preferred location.
If you decide you cannot cope with such a small home, you can also look into ways to make a mortgage on a traditional property more affordable, such as shopping carefully for interest rates among several mortgage lenders.
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