Tiny Home Financing And Loan Options
Sidney Richardson8-minute read
December 02, 2023
A tiny home might sound like an appealing option if you’re looking to downsize or enjoy a simpler way of life. Though there is no exact limit on the size of tiny houses, most companies define them as houses that have a maximum of 400 – 600 square feet of space. 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 in the first place?
Let’s dive into the details and find out how to finance a tiny home. Then, you can decide which option is right for you.
Can You Get A Tiny Home Mortgage?
Usually when you want to buy a house, you take out a mortgage to finance the home purchase. A mortgage loan allows you to pay for a house that might cost hundreds of thousands of dollars slowly over a period of time – usually 15 or 30 years. With a tiny home, however, these mortgage options are often not available.
Many mortgage lenders have minimum loan limits that are often more than the cost of building or buying a tiny home. The average cost of a tiny home is around $30,000 – $60,000, though they can be much cheaper (or more expensive) depending on what features you want to include. The minimum loan amounts of many lenders exceed those costs and thus disqualify tiny homes from getting a traditional mortgage loan.
Some lenders may also require a home to be built on a permanent foundation to qualify for a mortgage, which many tiny homes are not. Additionally, there might be requirements on minimum square footage to qualify for traditional loans, which tiny homes don’t often meet since most are 400 square feet or less.
So, how do you finance a tiny home? We’ll take a look at some of your options next. Keep in mind that Rocket Mortgage® currently does not offer mortgage loans for homes that are not built on a permanent foundation.
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Financing Options For Tiny Houses
If you can’t get a mortgage on a tiny home through your lender, how else can you finance the miniature home of your dreams? There are a variety of financing options available, so let’s go over the details of each to determine what might be the best fit for you.
Personal loans are some of the most common ways to secure financing for tiny homes. These loans are consideredunsecured loans, which means they won’t hold anything as collateral in case you default on the loan – though your credit will suffer if you do so. Personal loans typically have repayment terms of up to 7 years and might fund some or all of your tiny home’s costs.
Personal loans are a great option to pay off the costs of your tiny home quickly, but keep in mind the monthly payments may be high due to the short loan term. The rate you qualify for will also depend on your credit. The annual percentage rate (APR) on your personal loan might range from 3% – 36%. Borrowers with good credit scores may qualify for lowerinterest rates.
If your tiny home wasn’t built on a permanent foundation and is capable of being moved, you might be able to finance itwith an RV loan. 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 will need to comply with standards set by the U.S. Department of Transportation’s National Highway Traffic Safety Administration.
In order to qualify for an RV loan with some lenders, your tiny home may have to be your primary residence. One of the perks of an RV loan is that it doesn’t matter if your tiny home isn’t built on a permanent foundation. You’ll likely have a longer, more manageable loan term than you would with a personal loan, though you may be required to make a down payment.
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.
Keep in mind that the loan that might be available to you through a tiny home contractor is likely another type of loan from this list.
For example, some companies build tiny homes and then offer RV loan financing for them. These builders are typically RVIA certified and sell their tiny homes as if they were an RV dealership. Make sure you research the type of financing offered to you by a tiny home builder or contractor before agreeing to anything. Rates and loan terms may vary based on your lender, and you might not always be getting the best deal.
Additionally, with RV loans, your tiny home will also be the collateral for the loan. That means if you default on your loan, your lender can take possession of the tiny house.
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, there will be no need to worry about paying for any sort of loan. While this option definitely 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 potential risks of taking out loans to finance your tiny house.
It’s possible to charge the cost of your tiny home to credit cards as well, though this option may be one of the least feasible and is not recommended. You’d need to have a high enough available credit limit to cover the cost of your tiny home. Unless you built or bought a fairly inexpensive tiny house, this might not be the best tiny house financing option for you.
You should also consider the potential interest payments associated with buying your tiny house with a credit card. If you don’t have enough money saved to pay off the cost of your tiny home right away, the home purchase will accrue interest over time and become increasingly expensive for you to pay off.
Today's Purchase Rates
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- Based on the purchase/refinance of a primary residence with no cash out at closing.
- We assumed (unless otherwise noted) that: closing costs are paid out of pocket; this is your primary residence and is a single family home; debt-to-income ratio is less than 30%; and credit score is over 720; or in the case of certain Jumbo products we assume a credit score over 740; and an escrow account for the payment of taxes and insurance.
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What To Know Before Financing Your Tiny House
While tiny homes can be a charming and less costly alternative to traditional housing, they don’t come without challenges of their own. Let’s go over a few aspects of financing a tiny home that you might want to think about before moving forward with the home purchase.
1. You Need Land To Build On
Whether your tiny house is on a permanent foundation or not, you 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 it 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 like local building regulations and zoning laws. Zoning laws might dictate what you are 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 then have to figure out howto bring electricity and water to your tiny home. This can become pricey, especially if the lot you’ve chosen is far from city water and other utility accesses.
It’s possible to rent a plot of land rather than buy one, though these costs can add up over time. The plus side is that some areas have 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 of the reasons many lenders are hesitant to finance tiny homes is because they have a low resale value. Since many tiny homes are built on wheels and have the capability to be moved, they depreciate in value similarly to cars or RVs.
Like other vehicles, tiny houses are vulnerable to wear and tear associated with use over time. Besides depreciating in value, wear and tear that may require maintenance are other factors to consider when adding up the costs associated with buying a tiny home.
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, it can be done – but you’ll likely need a larger vehicle (like a truck) in order to tow it to your next destination. Trucks often have poor fuel efficiency, which can be a burden on your wallet when it comes to fueling up.
On the plus side, you can take your home almost anywhere you’d like across the country. 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 across long distances with a larger vehicle.
4. You Can’t Park The Tiny House Just Anywhere
While many tiny house homeowners choose to place their tiny home on a lot and never move it, others embrace the potentially mobile nature of tiny house living and choose to use their home for travel like an RV or camper.
Many campsites and national parks across the country offer the ability to stay on their grounds for an extended period of time to accommodate tiny-home owners. This can be a great option for homeowners looking to travel and sightsee from the comfort of a tiny home.
Keep in mind that not all campsites allow tiny homes to park on their grounds. You’ll have to do research on where you’ll be able to stay. Additionally, you’ll have to pay a daily, weekly or monthly payment to stay at campgrounds and parks, which sometimes may not be much cheaper than renting an apartment or home, depending on your location and length of stay.
5. A Small Traditional Home Might Be A Better Option For You
As we mentioned earlier, a tiny home is any home under 400 square feet. This size specification is one of the main things that makes tiny homes unable to qualify for mortgages. If you’re someone looking to live in a tiny home – particularly one that’s stationary and doesn’t leave the lot it rests on – and are frustrated by your financing options, consider building a small traditional home instead.
You can qualify for a conventional mortgage loan if your home meets the following requirements:
- The house must be on a permanent foundation.
- It has to be at least 12 feet wide and 400 square feet.
- The house must be a one-family residence.
- If it's a manufactured home, it must be classified as real property.
- Once the house is relocated to the lot or site it rests on, it can’t be moved.
The Bottom Line: Is Financing A Tiny House Right For You?
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, though you can also pay for a tiny house with cash. Before financing your tiny home, consider factors like the land you’ll need to build or park on, available utilities and whether you’ll sell the tiny home in the future.
If you’re concerned about whether the home you have in mind meets the standards for a mortgage loan, you can always talk to one of our Home Loan Experts to find out what options may be available to you.
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