Tiny houses are all the rage these days and shows like "Tiny House Nation" highlight the ups and downs of trading in a bigger home for a smaller lifestyle. Aside from allowing you to pare down the amount of stuff you own, living in a tiny home could also help you significantly trim your budget. Read on to find out how much you could save by moving into a tiny home.
Find out now: How much house can I afford?
Building Costs vs. a Mortgage Payment
One of the most often-cited arguments in favor of tiny house living is the fact that you might be able to do it without taking out a loan. You can't use a conventional mortgage to purchase a tiny home, so your financing options are more limited. But if you can afford to pay for a prefabricated kit and build your own tiny house, you can avoid taking out a personal loan.
Without a mortgage, you could stand to save quite a bit of money. In 2014, the average household spent roughly $1,483 a month on housing costs, including mortgage-related expenses.
When it comes to living in a tiny house, however, there's a trade-off in terms of the upfront cost. While the idea behind tiny homes is that smaller equals cheaper, that's not always the case when you calculate the cost per square foot.
Tumbleweed, for example, is a company that offers tiny home kits. For the starting price of $58,000, you can build a Cypress unit with 130 square feet of usable space. When you break that down, the price per square foot comes to $446.15. In 2014, the average price per square foot for a newly constructed single-family home was $97.09. While you may be able to save more money over time, you could still pay a premium for your tiny space.
Check out our mortgage calculator.
If you're living in a tiny home, you're probably using less electricity and water than the average homeowner. Plus, some tiny house owners make their homes energy-efficient by installing solar panels or rainwater collection systems. Considering that the average monthly electric bill came to just over $114 in 2014, you can save a decent chunk over the course of a year by living in a tiny house.
You could offset your savings, however, if you have to use energy elsewhere to do things that your tiny home won't allow you to do. For example, if you have to haul your clothes to the laundromat each week because your tiny home won't accommodate a washer and dryer, that additional expense plus the cost of transportation could reduce what you've stashed in your checking or savings account.
Insurance and Property Taxes
Homeowners insurance and property taxes are two expenses that can substantially drive up the cost of owning a regular home. On average, homeowners pay $1,034 a year for insurance and have an average property tax rate of 1.29%. On a $200,000 home, that comes to $2,580 in taxes and a total of $3,614 when you factor in the insurance. Over the course of 30 years, that means you could pay more than $108,000 in addition to a mortgage.
With a tiny home, those costs should be much lower. Homeowners insurance, for example, is calculated based on the replacement cost per square foot. If something happens to your tiny home, you've got fewer square feet to rebuild. That means you'll likely have a smaller homeowners insurance bill.
It's also possible to save on property taxes. Some tiny homes are not considered permanent structures, particularly if they're built using an RV or trailer. And even if you live in a state that requires owners of RVs and trailers to pay personal property taxes, you probably won't have to pay as much as a traditional homeowner.
Try out our property tax calculator.
The Bottom Line
Living in a tiny home isn't for everyone, but downsizing could be a good idea if you're trying to save. Before you move, it's important to consider how much the home is going to cost over time. Being able to avoid getting a mortgage is a nice perk, but you may not save that much in the long run if you have to constantly shell out money to keep your tiny home in shape.