Securing a mortgage on an unconventional home is tricky, but not impossible

By: Brennan Doherty on August 25, 2021
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It’s difficult to track down hard data on the number of Canadians living in tiny homes, RVs, energy-efficient green homes, and off-the-grid log cabins, but there appears to be growing interest in these types of unconventional homes.

In 2019, RV dealers started noticing Millennials and Gen Xers were buying RVs in greater numbers, perhaps due to unaffordable cottage prices. Tiny home builders saw a bump in quotes just after the pandemic hit. And for the last few years, provincial and federal governments have dangled incentives in front of Canadian homeowners keen on building or retrofitting greener homes. 

While many opt for these types of living spaces as a way to save money, they may very well still require financing to make it happen. Securing a mortgage on an unconventional home isn’t exactly straightforward, though. Lenders, especially large banks, are sometimes reluctant to issue mortgages on unconventional properties. The mortgage industry loves consistency and comparability, and a custom-built tiny home or off-the-grid log cabin may not tick either of those boxes.

The good news is: there are workarounds for adventurous borrowers desperate for a home on the road, on a tiny lot, or in the middle of nowhere.

Mortgaging a mobile home

Believe it or not, mortgages for RVs exist — and for good reason. The purchase price of a new RV can easily reach six figures, so many prospective owners choose to finance their mobile homes rather than pay in full up front.

Major lenders like Scotiabank, RBC, and TD offer specialized RV loans, as do some automotive lenders.

According to Go RVing Canada, a coalition of RV manufacturers and dealers, the minimum down payment for an RV typically runs between 10% and 20%, but some companies offer “no money down” options to qualified applicants. The terms can be as flexible as home mortgages, too: Scotiabank, for instance, offers borrowers up to 20 years to pay off their loans. 

Of course, the true cost of an RV goes far beyond the mortgage paperwork. There are fuel and maintenance costs, upkeep, insurance, and inspection payments to consider. An RV may offer a more free and adventurous life than a home in the suburbs, but its occupants are still bound to their cheque books. 

Mortgaging a tiny home

Financing a tiny home can be tricky. Jessica Whelan, co-founder and director of Rewild Homes, a B.C.-based tiny home building company, says it’s tough to get a mortgage for a tiny home through a major Canadian bank. Lenders look for comparables, or similar properties, when considering a mortgage application (this makes them easier to sell in the event of a foreclosure) — and tiny homes are hard to categorize. 

“The term ‘tiny home’ is still a colloquialism,” Whelan says. “There’s no set standardization for what constitutes a tiny home. You see all sorts of different definitions depending on who you talk to.” 

Still, there are ways to get financing for a tiny home. Whelan says many of Rewild Homes’ clients do it through a line of credit or personal loan. A few lenders willing to offer financing on tiny homes, like TinyLoans.ca and Purpose-Built Financing, also exist. Island Savings, a B.C. credit union, also offers tiny home financing, but not for DIY projects. Borrowers need to order a tiny home from a manufacturer in order to qualify. 

Lenders don’t love financing cabins that are off the grid because they’re more difficult to sell in the event of a foreclosure

Another way to secure a mortgage on a tiny home is to certify it as an RV and then apply for an RV mortgage, although this approach has problems for anyone considering a custom build. “It needs to be something that already exists,” Whelan explains, “as opposed to a custom tiny home that doesn’t exist yet.” 

Borrowers who want to go this route would need to pay around $10,000 for a third-party inspection agency, Whelan says, to inspect the custom tiny home at several different stages of its metamorphosis into an RV and ensure it meets all the right standards, like working tail lights, water tanks, and turn signals — even if it never hits the road.

Mortgaging a green home

Green homes can run the spectrum from a conventional bungalow decked out in solar panels to a hyper-efficient sealed habitat built to the highest energy efficiency standards in Canada. Borrowers looking for their own custom build can look to a construction loan, sometimes known as a draw mortgage, for financing, but these often come with higher mortgage rates.

In the early 2000s, some major Canadian banks debuted “green mortgage” options. TD Canada Trust, for instance, announced one in 2010 that gave green homeowners 1% off the posted interest rate on a five-year fixed-rate mortgage, as well as a rebate of up to 1% of a mortgage if borrowers bought solar panels and other energy-efficiency equipment. In 2011, BMO introduced its Eco Smart Mortgage, which, at the time, offered a five-year fixed rate of 3.89%. BMO claimed this was “significantly lower than comparable green mortgage products.” However, it's unclear whether TD or BMO still offer these mortgage options.

Generally speaking, green mortgages don’t seem as plentiful today. That said, Desjardins offers a savings initiative for borrowers looking to buy or build a green home. The Green Homes Program provides up to $2,000 cashback to build a green home certified to LEED or the Ontario or Quebec energy efficiency standards. It also promises aspiring green home owners the lowest Desjardin rates — currently 1.75% for a five-year reduced variable-rate mortgage.

And the Canada Municipal Housing Corporation (CMHC)’s Green Home program gives refunds on mortgage loan insurance premiums for homes built to specific energy efficiency standards. Homes on the R-2000 standard, considered to be 50% more efficient than a conventional home, are eligible for 25% back, while homes built to provincial efficiency standards — like Quebec’s Novoclimat 2.0, Efficiency Manitoba’s New Homes Program, or Ontario’s GreenHouse — qualify for a 15% refund.

Mortgaging an off-the-grid log cabin

Off-the-grid log cabins are a rustic alternative to life in a modern home or cottage, but they aren’t the easiest to mortgage. As recently reported in The Globe and Mail, lenders don’t love financing cabins that are off the grid because they’re more difficult to sell in the event of a foreclosure. However, there are a few lenders who are willing to do so. Kawartha Credit Union, for instance, told the Globe it sees more requests for off-the-grid financing likely because of its proximity to Ontario’s cottage country. 

Depending on a log cabin’s specifications, borrowers may be able to secure a cottage mortgage. There are two broad types of cottage properties, according to London, Ont.-based mortgage broker Altrua Financial’s website: type A (a fully winterized property in good conditions accessible by a year-round access road) and type B (a structure that needs a full foundation, isn’t necessarily winterized, and doesn’t necessarily have year-round access). 

Anyone looking for a mortgage on a type A cabin wouldn’t need modern utilities to qualify — the cabin could even draw lake or well water — but the property would likely need to be fully winterized with all-year road access. Meanwhile, a type B cabin would include very isolated rural properties, including cottages on an island, and any other structures that don’t have year-round road access. An off-the-grid cabin could easily fall into either category. According to Altrua Financial’s website, lenders treat cottages on “more of a case by case basis.”

Interest rates on cottage mortgages vary, but generally speaking, are higher than a conventional home because they aren’t occupied year-round. (For this same reason, home insurance rates on cottages also tend to be higher.)

As with all real estate decisions, financing an unconventional home comes down to way more than the monthly interest payments. Insuring a tiny home or green home, managing energy rebates for an off-the-grid cabin run on solar panels, or just putting gas in the tank of an RV all add up. 

Finding mortgages for these less traditional style homes may not be easy, but it is possible if borrowers do their homework.