How to get tiny home financing?

People are increasingly adopting the Tiny House Philosophy, and there are two primary motivators behind this shift. While partly, people are choosing this minimalistic lifestyle because it uses fewer resources, produces less waste, and is economically sustainable – a significant attraction in downsizing to a tiny house is the reduced financial costs and increased affordability.

A survey conducted by the Fidelity National Financial subsidiary, IPX1031, showed that 56% of the 2000 respondents would want to live in a tiny house. Therefore, people are now looking into how to get tiny home financing, which is exactly what we will be covering in this post.

What do You Need to Know?

Firstly, whether you decide to build your tiny home or buy it – you will need a piece of land to place it on. Whether you own this piece of land, have borrowed it from a friend, rented it, or are planning to buy it – you need to check that region’s zoning regulations.

Not every state has tiny house-friendly policies, and most cities’ zoning laws do not allow for people to purchase a piece of land to put such a small unit of accommodation on it. You may want to learn more about laws and regulations related to tiny homes from the American Tiny House Association’s website.

Another thing to consider is the initial cost of your tiny house which can vary greatly depending on the style, size, material used, and other factors, including whether or not you will be building it yourself. Building a tiny home can range anywhere between $10,000-$30,000, and that is still half the price of getting it done by a builder.

It is hard to pin down an average figure for a tiny house because you can expect to pay anywhere between a few thousand dollars to $150,000. So, you will need to thoroughly research and plan what type of tiny house you are looking for before exploring your financing options.

Finally, you will need a good credit history to secure a loan to finance your tiny house. This means that you will need a score of at least 700 to get an unsecured loan and a score of 640 or better to get a secured loan. Moreover, the better your credit – the lower your interest rate.

What are Your Tiny house financing Options?

1. Mortgage – not really an option

In most cases, a tiny home will not qualify for a mortgage loan, so this is still not an option to go for. This is because either the homes’ value falls below the standard $100,000 required by some lenders or because a small home loan cannot be securitized.

In very rare cases, if you are building a tiny house on a foundation in compliance with all local building requirements, you get a mortgage loan for your tiny house. But this tiny house financing option will still be challenging due to much shorter payment terms and higher interest rates.

2. Home Equity Loans

Alternatively, you can get a home equity loan to finance your tiny house. However, you can leverage this option if you already have a bigger home, as then you can tap into your home equity to obtain the money. With this option, your loan is secured by your larger home instead of the tiny house. So, if you cannot pay the debt in time, your main home is seized to satisfy the loan. Most people who opt for this option add a tiny home on their property as an in-law suite or guest house.

3. Home Equity Line of Credit

Home Equity Line of Credit or HELOC is very similar to a home equity loan as both are funded by the equity in your property and secured against your main house. This is a popular tiny house financing option because it works like a credit card, allowing you to draw small amounts of money as needed.

This is particularly helpful if you are building your own tiny house. While home equity loans have fixed interest rates with repayment terms ranging between 5 and 30 years, a HELOC’s interest rates vary.

4. RV loans

If you plan to buy a THOW (Tiny House on Wheels), you may be able to obtain a Recreational Vehicle loan. However, your tiny house will have to fulfil the requirements of and be approved by the RV Industry Association to be eligible for this loan. Another problem with this tiny house financing option is that you cannot qualify for an RV loan if it is meant to be your permanent dwelling.

So, this is the option for you only if you are looking to live in it temporarily. If you manage to obtain an RV loan, it has lower interest rates compared to a personal loan and has payment terms of up to 15 years, leaving you ample time to complete the purchase.

5. Personal loans

The last option to finance your tiny house is to obtain a personal loan. They are the most flexible tiny house financing option available as they can be taken for just about any amount ($1000 – $100,000) for almost anything. Personal loans are also appealing because they usually do not have collateral, which means you do not have to lose your property if you cannot pay the debt off.

However, they also have some drawbacks. The repayment terms of personal loans can be very short – generally 2-7 years – which can make monthly payments challenging. Secondly, they can also have higher interest rates going up to 36%. You need a stellar credit score to get a good rate on personal loans for financing a tiny house.

Who can Finance your tiny house?

Here are some places you can contact depending on the type of loan you are applying for.

• LightStreamoffers a personal loan specifically designed for tiny homes.
• For comparatively larger amounts of loans, you can check out Upstart, Upgrade, and Best Egg.
• To obtain a home equity loan or HELOC through Bank of America, PNC, or Flagstar Bank.

Our Final Thoughts

Financing a tiny home can be slightly tricky as you need thorough research into your available options. The process is not as straightforward as securing a loan for a regular home. There are several factors to consider, such as the zoning regulations and hidden costs of downsizing to a tiny home. We hope that this short guide on how to get tiny home financing helps you make a safe decision for your new tiny house and gives you a basic understanding of all available options.