Tiny Home Financing And Loan Options

A tiny home might sound like an appealing option if you’re looking to downsize or enjoy a simpler way of life. Many home buyers are interested in the tiny-house lifestyle for its minimalist charm and lower cost of living. But how do you go about financing a tiny home?

Most people who buy a house take out a mortgage to finance the home purchase. A mortgage loan allows you to pay for a house over a period of time – usually 15 or 30 years. With a tiny home, however, these mortgage options are often not available.

Can You Get A Tiny-Home Mortgage Loan?

Many mortgage lenders have a minimum loan amount that’s more than the cost of building or buying a tiny home. The average cost of a tiny home is in the $30,000 – $60,000 range, though tiny homes can be much cheaper (or more expensive) depending on the features you want to include. If the smallest loan a mortgage lender will provide exceeds the cost of a tiny home, as is often the case, it won’t be possible to get a mortgage to make a tiny home purchase.

Some mortgage lenders may also require a home be built on a permanent foundation, but many tiny homes are not. Rocket Mortgage^® currently doesn’t offer mortgage loans for homes that aren’t built on a permanent foundation. Additionally, a mortgage lender might require a minimum square footage that a tiny home won’t meet since many tiny homes are less than 400 square feet.

Tiny-House Financing And Loan Options

So, how do you finance a tiny home? Here are several viable financing options that don’t involve a traditional mortgage.

Personal Loan

Being approved for a personal loan is one of the most common ways to secure financing for a tiny home. A personal loan is most often an unsecured loan, meaning a lender won’t hold anything of yours as collateral in case you default on the loan – though your credit will suffer if you do. A personal loan can have a repayment term of up to 7 years and might fund some or all of your tiny home’s costs.

A personal loan can be a great option for paying off the costs of your tiny home quickly, but the monthly payments may be high due to the length of the loan term – which will be significantly shorter than a mortgage repayment term. The interest rate you qualify for will depend largely on your credit profile. The annual percentage rate (APR) on a personal loan can range from 3% to 36% of the loan amount. Borrowers with a good or excellent credit score will usually qualify for a lower interest rate than someone with a lower score.

RV Loan

You might be able to finance a tiny home with an RV loan if your tiny home isn’t attached to a permanent foundation and can be moved. You can typically take out an RV loan through an online lender, bank or credit union. To get an RV loan, your tiny home will have to be deemed roadworthy by the Recreation Vehicle Industry Association (RVIA) and comply with standards set by the U.S. Department of Transportation’s National Highway Traffic Safety Administration.

To qualify for an RV loan with some lenders, you may have to be committed to making a tiny home your primary residence. You’ll likely have a longer, more manageable loan repayment term with an RV loan than a personal loan, but you may be required to make a down payment.

Additionally, with RV loans, your tiny home will also be the collateral for the loan. So, if you default on your tiny-house loan, your lender can take possession of your home.

Contractor Or Builder Financing

If you’re working with a tiny-home contractor or builder, they may be able to help you secure financing for your tiny home. Some companies actually build tiny homes and offer loans to finance them. The contracting or building company typically does this by working with a lender to help buyers secure loans through their business.

Before agreeing to anything, research the type of financing offered to you by a tiny home builder or contractor. The interest rate and loan repayment term will vary based on your lender, and you might not always be getting the best deal.

Cash

Paying for a tiny home upfront in cash is perhaps the most ideal method of financing. If you can pay for your tiny house completely, you won’t have to worry about repaying any kind of loan. While this option isn’t feasible for everyone, it makes the most sense if you’re looking to pay less in the long run. Paying with cash can also help you avoid the risks associated with taking out a loan to finance your tiny house.

Credit Card

It’s also possible to charge the cost of your tiny home to credit cards, but this option may be one of the least feasible and isn’t recommended. You’d need a credit limit high enough to cover the cost of your tiny home. Unless you built or bought a fairly inexpensive tiny house, this might not be a realistic tiny house financing option.

You should also consider the interest you’ll pay if you buy a tiny house with a credit card but don’t pay the statement balance in full when it’s due each month. If you can’t pay off the cost of your tiny home right away, the home purchase could accrue interest over time and become expensive to pay off.

What To Know Before Obtaining A Tiny House Loan

While tiny houses can be charming and less expensive than traditional housing, they don’t come without some challenges. Before moving forward on the purchase of a tiny house, several key considerations are worth factoring into your decision-making process.

1. You Need Land To Build On

Whether your tiny house is on a permanent foundation or not, you’ll need some kind of land for it to rest on. Land isn’t free, so you’ll likely have to finance a plot, as well, if you’re not building a tiny house on an existing property.

To get a plot of land, you’ll likely need some kind of land loan – unless you’re paying rent on the property. Once you secure financing for the plot of land, you’ll have to consider factors such as local building regulations and zoning laws. Zoning laws might dictate what you’re allowed to build on the land you’ve purchased.

If there’s no available power on the lot you’ve chosen (such as with undeveloped land), you’ll have to figure out how to bring electricity and water to your tiny home. This can become expensive, especially if the lot you’ve chosen is far from city water and the closest utility provider.

It’s possible to rent a plot of land rather than buy one, but these costs can add up over time. The plus side is that some areas feature tiny home communities where you can rent land intended for tiny house parking. These communities typically have utilities and other services set up in advance for you.

2. Resale Value Is Usually Low

One reason many lenders are hesitant to finance tiny homes is their low resale value. Since many tiny homes are built on wheels and can be moved, they depreciate in value much like cars and RVs.

Similar to other vehicles, tiny houses are vulnerable to wear and tear associated with use over time. Besides causing a tiny home to depreciate, wear and tear may require costly maintenance.

3. If Your Home Moves, You Need Something To Move It

If you ever wish to relocate your tiny home and it isn’t built on a permanent foundation, relocation is possible – but you’ll likely need a larger vehicle (such as a truck) to tow the home to its next destination. Trucks often have poor fuel efficiency, which can be a burden on your wallet when fueling up.

On the plus side, you can take your home almost anywhere in the continental United States. Owning a moveable home is somewhat of a double-edged sword; you get freedom in exchange for the cost (and greenhouse gas emissions) associated with moving the home potentially long distances with a relatively large vehicle.

4. You Can’t Park The Tiny House Just Anywhere

While many tiny-house homeowners choose to place their home on a lot and never move it, others embrace the potentially mobile nature of tiny house living and use their home for travel just as many people use an RV or camper.

Numerous campsites and national parks across the country allow visitors to stay on their grounds for an extended period of time. This can be a great option for homeowners looking to travel and sightsee from the comfort of a tiny home.

Not all campsites allow tiny homes to park on their grounds, though, so it’s best to research where you can stay. You’ll have to pay a daily, weekly or monthly fee to stay at campgrounds and parks, which may not be much cheaper than renting an apartment or home. The better option for you will likely depend on your location and length of stay.

5. A Small Traditional Home Might Be A Better Option For You

Since many tiny homes check in at less than 400 square feet and fail to qualify for mortgage financing, a tiny-home purchase might not be in the cards. If you’re looking to live in a smaller home – particularly one that’s stationary and doesn’t leave the lot it rests on – but you lack the financing for a tiny-home purchase, you might instead seek to buy or build a traditional home that’s on the smaller side.

It’s possible to get a conventional conforming loan if a house is:

• On a permanent foundation
• At least 12 feet wide and 400 square feet
• A one-family residence

Also, if the house is a manufactured home, it must be classified as real property.

In addition, once the house is relocated to the lot or site it rests on, it can’t be moved.

The Bottom Line: Tiny-Home Financing Options Are Worth Exploring

While your options for financing a tiny home are limited, it’s entirely possible to move forward with a tiny-home loan. Your primary loan options include personal and RV loan products, but some buyers will pay for a tiny house with cash. Before financing your tiny home, consider the land you’ll need to build or park on, available utilities and whether you plan to sell the tiny home in the future.

If your prospective home exceeds tiny-house size limits, is set on a permanent foundation and meets the requirements for traditional-home financing, you may opt for a mortgage. Start the application for a home loan with Rocket Mortgage and get one step closer to moving into the house you want to call your own.