The tiny house movement is upon us but not all banks are on board with the need to densify.
For the most part, small space in Canada is defined as a residence under 500 sqft. Tiny homes are still the minority in Canada’s real estate market, and as a relatively new concept, some banks view this as an untested investment. After all, should you default on your loan the lender would be tasked with foreclosing and reselling your home to clear up the mortgage amount owing.
The small space mortgage bias is a little known point of mortgage lenders’ policy because it effects such a low percentage of applications. At this point, mortgage representatives don’t run into it often enough and some don’t even know it is in effect.
If you already have a prequalification for a mortgage it’s not a guarantee your lender will grant financing on a space under 500 sqft. In the prequalification process your mortgage lender will evaluate your financial ability to carry the potential mortgage loan, but it’s not until you have an active offer on a property that the final approval will be processed. In the second qualification phase the underwriter will appraise the worthiness of the property purchase as an investment. It’s during the second phase that the lender will examine all the details of the potential purchase and this is when you may see the minimum dwelling space restriction come up.
There does not seem to be any definitive across-the-board rules other than individual lenders policies. There is no legislation that governs the minimum dwelling size for a residential mortgage; there are not even any provincial laws to govern the minimum size for rooms or overall building size. This is deferred to the municipal level government and each municipality is different. Vancouver, being very progressive, allows condo residences as small as 389 sqft and rental apartments at 320 sqft.
For many young people getting into the home ownership market, a condensed condo near rapid transit is going to be their best option. Many young first time buyers are choosing to live car free in order to build equity, investing in a condo instead of tying up funds in automotive carrying costs and maintenance.
The cost of housing has created a need for smaller space living options in our urban centres. As someone who lives and works just 30 minutes from downtown Vancouver in New Westminster, I see the need for densification all around me every day, and I don’t understand why all banks don’t support this.
Small scaling has been the norm in most of the rest of the world and in our North American not-so-distant past as well. Just a generation ago didn’t we all share a bedroom with our siblings? Go back to our grandparents era and they grew up with the whole family in a single room. New York City is famous for its historical apartment buildings and small shared accomodation.
Small space is the path of the future and the path of our past.