Tiny Home Financing And Loan Options
Sidney Richardson8-minute read
January 12, 2023
A tiny home might sound like an appealing option if you’re looking to downsize or just find a simpler way of life. Tiny houses – homes with 400 square feet of space or less – get more popular every year with home buyers for their 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 and whether it’s the right choice for you.
Can You Get A Tiny Home Mortgage?
Usually when you want to buy a home, you have to get a mortgage. 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, this kind of traditional financing is often not available.
Many 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 the 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 also don’t often meet since they 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.
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 usually unsecured, 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 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 depend on your credit. The annual percentage rate on your personal loan might range from 3% – 36%, and only borrowers with good credit will have access to low interest rates.
If your tiny home wasn’t built on a permanent foundation and is capable of being moved, you might be able to finance it with an RV loan. To get an RV loan, your tiny home will have to be deemed road worthy 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.
To get an RV loan from some lenders, your tiny home may have to be your primary/permanent residence. One of the perks of an RV loan, though, is that it doesn’t matter that your tiny home isn’t built on a permanent foundation – and 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.
Major banks might offer terms up to 20 years rather than the maximum of around 7 you could get with a personal loan. You’ll likely see rates of around 4.5% – 7.5%, though, which is higher than a typical mortgage loan rate.
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 as well as offer loans for them – which they typically do by working with a lender to help buyers secure loans through their business. With this option, however, 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. With that in mind, 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.
Pay With 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, 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 and avoid the potential risks of taking out loans.
Can I Use Credit Cards?
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 balance to cover the cost of your tiny home, which unless you’ve built or bought a fairly inexpensive one, can be difficult. You should also keep interest in mind; if you don’t have enough saved to pay off the cost of your tiny home right away, it will accrue interest over time and become increasingly expensive for you to pay for.
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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.
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 of land 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 renting. Undeveloped land can be a struggle to find and get financing for even with online resources, and the challenges won’t stop with securing a loan. Once you’ve found a way to pay for a plot of land, you’ll have to consider things like local regulations. 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, you’ll also have to find a way to 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 is possible to rent a lot rather than buy one, though this can be costly over time. There are even some tiny home communities out there where you can rent land intended for tiny house parking that might have utilities and other potential issues set up and figured out in advance for you.
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, they are vulnerable to wear and tear associated with use over time. Besides depreciating in value, wear and tear that may require maintenance is another thing to consider when adding up the costs associated with buying a tiny home.
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, however, 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.
You Can’t Park It 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 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 homeowners. This can be a fantastic option for people looking to travel and sightsee from the comfort of home.
Some campsites will turn tiny homes away, however – so you’ll always 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.
A Small Traditional Home Might Be A Better Option For You
As you may recall from 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 600 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.
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. You can also give them a call at (833) 326-6018.
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