5 Tips to Get Into a Better Position to Borrow

Money is one of those taboo topics that we’re “not supposed to talk about.” But, hey, we’re already breaking the mold by building tiny cottages, so we say it’s time to smash that old way of thinking! Let’s move forward into financial literacy along with housing stability. Who’s with us?! 

So, money. While it would be great if everyone had cash, the reality is that most people will rely on financing to secure their Teacup. But how do you get yourself in a position to borrow? Let us walk you through the steps!

The first step is to understand that financing a tiny cottage will be different from getting a traditional home mortgage- and the rates will reflect that. This is because Teacups are not affixed to land, so they will be considered personal property rather than real estate. 

Don’t worry, though! Even without traditional mortgages, there are still plenty of financing options available. Teacup owners have successfully secured financing via personal loans, RV loans, and home equity lines of credit, just to name a few sources!

The second step to getting into a position to borrow is to gather information. Lenders will want to know things like your credit score, debt-to-income ratio, and monthly expenses. They will also want to know the cost of the Teacup you want to buy. If you figure these things out ahead of time, you will be able to make adjustments to increase your borrowing power. Adjusting these things can sometimes take time, so even if you don’t plan on buying a tiny cottage for another year or two, it’s still a good idea to evaluate your financial situation sooner rather than later.

In just a second, we’re going to explain how to find the information above, but because money is a tricky topic, we want to pause here to remind you to not feel overwhelmed. Our team at Teacup has got you, ok? We’re going to figure this out together! Excellent. Now let’s break down that previous paragraph into bite-sized steps.

• Know your credit score

If you go to CreditKarma.com, you can create a free account. This will allow you to check your TransUnion and Equifax scores. Knowledge is power, so be brave and find out what they are. If your credit isn’t what you want it to be, please know that there are so many simple tricks to improve your credit without taking on more debt. The better your credit, the better your interest rate will be, so it’s worth putting in some effort to improve your score. We recommend consulting with a financial expert for tips on how to do so.

• Calculate your debt-to-income ratio

A debt-to-income ratio is a ratio of what you owe each month to what you earn. (Gross income earnings). It’s the ratio lenders will look at to determine if you can reasonably take on more debt. Debt-to-income ratios will vary based on a few factors, but you’ll want to aim for 36% or less if possible. So how do you find your debt-to-income ratio? Simple.

>Calculate your monthly debts (Google to see which debts count toward this number.)

>Divide by your gross monthly income

>Multiply by 100 to get a percentage.

See? We told you it was easy! 

• Evaluate your expenses

Even if your debt-to-income ratio is in good shape, it’s still a good idea to take a look at your negotiable spending. A good lender will want to ensure that you are comfortable with any new monthly payment, and we want you to have enough money left over to furnish your beautiful Teacup baby! 

It’s going to take some effort, but it’s a good exercise to go through your bank statements and assign each expense to a particular category: housing, food, entertainment, etc. If you do three to six months of expenses (or a year if you want extra credit!), you’ll start to see patterns of where your money is going. Then you can evaluate whether you need to make changes to your spending or income to give you a better shot at qualifying comfortably.

• Calculate the price of your Teacup

It’s so much easier to take action when you’re working with actual numbers! And here at Teacup, we want to give you the tools to plan ahead. That’s why we created our online estimate builder. It will allow you to play around with your upgrade options and price out the Teacup of your dreams. Can you feel your tiny house or cottage getting closer?!

• Save for a down payment 

Finally, it’s time to save for a down payment. The higher your down payment, the lower your monthly payment will be, so you’ll want to put down as much as you comfortably can. And when you’re doing the math on your projected monthly payment, don’t forget to account for land rent (if applicable) and any utilities. The good news is that tiny cottage utilities are pretty minimal!

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And there you have it! Those are some steps you can take today to put yourself in a better position to borrow! As we said before, we know money can be a difficult topic, so we applaud you for sticking around to discuss it. We love to see people take charge of their lives!

If you haven’t done so, we encourage you to take our financing quiz. That will give you some idea of whether or not you’d qualify today. If so, cool! In that case, let’s book a Discovery Call and get you into the build queue! And if not, no worries, we know these things take time. Just follow the steps above, and you’ll be a qualified borrower before you know it. We believe in you!

If you’re joining us for the first time, welcome! Our team at Teacup is glad to have you. We put out a blog post like this one every week. And if you’d like for us to drop the next one right in your inbox, you can subscribe here. 

Alright, well, that’s all for now. Thanks for reading, and we’ll see you next week!

Until then,

-Jen