Homeownership has changed shape over the last several decades. Instead of focusing on owning a single-family property with a traditional white picket fence and yard, consumers have shifted their idea of homeownership to include options like tiny homes and even RVs.
Although tiny homes have been around for several years, they started gaining more traction after the 2008 recession. People were drawn to the idea of owning property without the hefty price tag, one of the many benefits of owning a tiny home. Other advantages include being better for the environment by taking up less space and using less energy, as well as the ability to move the tiny house with relative ease.
The popularity of owning a tiny home continues to boom — just look at the abundance of television shows showcasing the design and build process.
Although the cost of a tiny home is far less than a standard-size house, many people still require some type of financing to purchase one. The cost of a tiny home, which is usually around 400 square feet or less, can range from $25,000 to $35,000 for a standard build and minimal design features, but those who want luxury on a small scale can pay quite a bit more.
If you don’t have the money in the bank to cover the cost, you have several financing options available, including tiny home loans.
On this page:
- How to Finance a Tiny House
- Pros and Cons of Financing a Tiny House
- Finding the Tiny House Financing Option that’s Right for You
How to Finance a Tiny House
Although some homeowners are able to purchase a tiny house without taking on debt, that isn’t the case for everyone aspiring to own a tiny home. Not many financial institutions that offer mortgages extend those financing options to tiny homes because they are not considered a permanent structure. This presents more risk to the lender than a conventional piece of real estate.
However, because the price tag on tiny homes is far smaller than a traditional home, other financing options exist.
You have the ability to use an unsecured personal loan for a tiny home. Most online lenders, including Lightstream, SoFi, and LendingClub, offer personal loans for just about any reason. Traditional banks and credit unions may also provide personal loans for a tiny home purchase, particularly if you have good credit.
A personal loan provides providers with an influx of cash that is repaid over time with interest. Most people use them to pay for major expenses they cannot cover outright, to consolidate high-interest debts like credit cards, or to take care of a financial emergency.
In some cases, you can also use a personal loan to finance a tiny home. This may be beneficial because personal loans typically have fixed interest rates, giving you predictability with your monthly payments without needing to put up collateral.
Personal loans for a tiny house purchase do require a check of your credit score. Lenders want to see you have a strong track record of on-time payments for other debts before they offer you a personal loan to cover the cost of a tiny home.
>> Read More: What credit score do you need for a personal loan?
The interest rate will depend on your credit history. Although interest rates on personal loans are usually lower than credit card interest rates, they’re often higher than what you may qualify for with a traditional mortgage loan.
The best personal loans typically have repayment terms ranging from one to five years, although some lenders may offer longer-term loans. In most cases, minimum loan amounts apply — so you’ll need to consider how much you need to borrow before going this route.
4.29% – 11.29%
2 – 7 years
$5,000 – $100,000
6.95% – 35.99%
3 or 5 years
$2,000 – $40,000
9.95% – 35.99%
2 to 5 years
$2,000 – $35,000
An RV loan may also be used for financing a tiny house purchase, but only when the home is built to move. RV loan lenders view tiny homes on wheels as recreational vehicles, so they can be an option for qualified borrowers.
One of the benefits of using an RV loan to finance your tiny home is the fact lenders may offer a higher loan amount than what a personal loan can provide. Also, you may pay a lower interest rate with an RV loan as the RV is used as collateral for the loan.
You will still need to qualify based on your credit score and history. The interest rate will be based on these qualification criteria, so those with excellent credit will typically receive the lowest rates. Also, it is important to note that RV loans may require your tiny home to be considered roadworthy by the Recreational Vehicle Industry Association.
Due to the increase in the popularity of tiny homes, a handful of peer-to-peer lending sites have popped up. Through peer-to-peer lending platforms like TinyHouseLoans.com and Tiny House Lending, prospective buyers are matched with investors or third-party lenders to help with the financing process.
Many of these peer-to-peer lending platforms have similar qualification requirements and loan terms as personal loan lenders.
Tiny house financing is not typically available directly manufacturers unless they work with third-party lenders. If you are using a company to build or design your tiny home, it doesn’t hurt to ask if they have financing options available.
Some manufacturers that offer tiny home financing may offer similar rates and terms as those offered by personal loans, while others might offer terms more similar to that of RV loans.
Pros and Cons of Financing a Tiny House
Financing a tiny home comes with a few built-in benefits, including:
- The ability to move in sooner
- The option to save your cash for other financial needs
- Relatively low-cost financing with the right lender
- The opportunity to pay for your tiny home over several years
However, there are some downsides as well. The most common disadvantages of financing a tiny home are:
- You need strong credit to qualify
- You may be required to provide a down payment
- Your tiny home may have to be verified as roadworthy if using an RV loan
- You are paying interest on the financing option, which increases your total cost of ownership
- It may be difficult to qualify for other large-dollar loans when you have a tiny home loan already in place
Finding the Tiny House Financing Option that’s Right for You
Picking the right financing option for your tiny house purchase requires some comparison shopping as well as a clear idea of your budget.
Although tiny homes are less expensive than traditional-size homes, you are still taking on significant debt to make your tiny home dream a reality. That means a monthly payment for several years that you will need to repay.
You will also want to look at the terms and conditions of each financing option available to you. This ensures you are getting the best deal for your tiny home financing based on your needs.
Financing a tiny home purchase may be the best choice for you if you do not have the cash set aside to buy your house outright. Many different financing options exist, including personal loans, RV loans, peer-to-peer lending, and manufacturer financing.
Each warrants consideration, and you should definitely compare rates, terms, and fees — including whether the lender charges prepayment penalties — before signing your loan agreement.
*Payment example: Monthly payments for a $10,000 loan at 9.34% APR with a term of 3 years would result in 36 monthly payments of $319.58. LightStream disclosures here.
Author: Melissa Horton
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