Book: ‘From a Dream Home to a Ready-to-Move-In Home’: FINANCING AND INSURANCE (A Look at Chapter 7)

“MY REGULAR BANK WILL SURELY OFFER ME THE BEST TERMS FOR MY TINY HOUSE.”

This will help you get a realistic picture of your financial needs, find a bank that can help you bring your vision to life, and secure insurance that protects you and your investment.

When it comes to financing, in addition to budget planning—that is, determining how much money you need in total for your project—it is crucial to consider how high your potential monthly payment should be and how long the term of your loan needs to be. Both factors naturally depend largely on the total cost of the project and your equity, but they should also be tailored to your personal vision. Here, it helps to look back at your motivations for living in a tiny house, which you have already considered.

• How important is financial relief to you in the decision to move into a tiny house?
• Do you hope that living in a tiny house will reduce your current costs for renting an apartment or a house?
• Do you plan to live in the tiny house only for a certain period of time, or is it meant to be your permanent new home?
• Do you view your tiny house as an investment?

During our adventurous search for a plot of land, we encountered a few setbacks when it came to financing. What initially felt like a lack of understanding turned out, in hindsight, to be reasonable concerns raised by our bank. Based on our experience, you should make sure—especially when it comes to building lots—that …

• … the price of the property is in line with the standard land value.
• … the property is actually buildable and that utilities (including access) are secured. A property that doesn’t meet these criteria often won’t be financed.
• … you can already provide initial information about your project and address any reservations about tiny houses.

From experience, we can tell you that there’s nothing worse for your nerves than unexpected costs. So be prepared for the fact that…

• … “starting at” prices are often listed on manufacturers’ websites, which can quickly skyrocket depending on your personal custom requests.
• … in addition to the pure construction costs, there may also be costs for delivery and/or assembly.
• … tradespeople (in our case, the roofer) may specialize in certain materials and products, which ties you to them and can result in additional costs. We’d like to share our key figures with you:

The purchase price for the 865-square-meter plot, along with a share of the right-of-way for access and development, was €62,500. Added to this were incidental purchase costs and additional administrative fees totaling €5,686. The development, paving work, and necessary backfilling had been estimated at approximately €15,100 during a preliminary site inspection by the civil engineering firm. The delay caused by the work extending into the new year, the associated transport of machinery to and from the site, a redesign necessitated by the challenging slope of the property, and the extra work resulting from a misinterpretation of the tiny house plans increased the cost of this work by approximately 76%. Naive as we were at the time, we assumed that the nearly €15,000 quoted by the civil engineering contractor would already cover all costs associated with site development. The additional costs of about €6,600 that we ended up facing came as a surprise to us. Our first tiny house quote from April 2020, at that time still a standardized tiny house on wheels, was around €69,000. Through the intensive focus on us and our needs, it ultimately became a modular house with a wood-frame construction. Over the course of planning our house, the price increased by about 10%. Almost two years passed between the first non-binding cost estimate in May 2021, which came in at a good €155,000, and the signing of the purchase agreement. To be fair, the contractor had already factored in a “safety buffer for price fluctuations” of €9,000 in the initial estimate. Due to our specific customization requests, the increased complexity of installing electrical wiring for the underfloor heating across multiple floors, a change in roofers, and rising costs for products and materials, the construction costs in our final calculation amounted to €170,000. In addition to the house price, there were costs of €4,770 for local contractors to position the house on-site and connect it to electricity and water.

[In the book, you’ll find all the cost categories in detail at this point, along with many more tips on the subject.]

[...] Due to the growing popularity of small houses, some banks have now put together special loan offers tailored to this type of house and its use. These include, for example:

• PSD Bank
• Ethik Bank
• Umwelt Bank
• Sparda Bank
• GLS Bank

We got the impression that these banks genuinely care about issues like sustainability and social responsibility, and are therefore open to alternative housing concepts. Often, we didn’t even have to start by explaining the basics of tiny houses to these very banks in order to get a quote. [...]

Once the financing is in place, you should take care of insurance for your tiny house. There are now special building, contents, and transport insurance policies tailored to tiny houses. During our research, we came across offers from Gothaer, Allianz, and Vivema, though the market is constantly evolving. [...]

To help your advisor or broker provide you with a suitable quote, it’s helpful to have the answers to the following questions ready. For questions you can’t answer yourself, the home builder can usually help. Fortunately, ours has assisted us with many issues related to the house. And don’t worry—even as a homeowner, you shouldn’t expect to be able to answer every question yourself. Don’t be afraid to leave gaps: simply forward the relevant points from this list to your project partners. This saves time and energy for everyone involved.

• When do you plan to move in, roughly?
• Will the house be used exclusively by you, or could you see yourself renting it out as well?
• Is it planned or foreseeable that your tiny house will be vacant for more than 120 consecutive days? Most insurers consider an unoccupied building to be at higher risk, as unnoticed water or storm damage, or a break-in or vandalism, may not be detected immediately. So if your tiny house stands empty for an extended period, it may not be considered a permanently occupied residence and would then fall into a different risk category.
• Is it a single-family home?
• What is the construction style or building type?
• What is the total living area of the tiny house?
• Are the exterior walls of the building primarily made of wood, or does the building have a soft roof? Wood, as a combustible building material, leads to an increased fire risk. A soft roof, e.g., made of straw, may be damaged more quickly by storms, hail, or fire than hard roofs made of tiles. This may result in an insurance surcharge. [...]

[You can find these and many other important check questions in the chapter of the book.]

In Chapter 7 of 10, you’ll learn how to realistically determine the financial requirements for your tiny house project, conduct meaningful initial discussions with banks, and insure your tiny house.

Click here for the book!