Tiny Home Financing: Compare Loan Options

Whether you want to avoid increasing home prices or declutter your lifestyle, tiny homes can be an attractive option. “Tiny home” often describes anything under 600 square feet, but the average tiny home size is 225 square feet. They’re also much cheaper than typical homes, with price tags in the $30,000 to $60,000 range.

Despite this, most people still need financing for a tiny house. However, they don’t qualify for most traditional mortgages, so you must find alternative forms of financing.

Personal loans can be an ideal way to finance a tiny home, but other options include mobile home loans, RV loans, and tiny house mortgages. We’ll look at each option and how you can get approved for tiny home financing.

In this guide:

• Why consider a personal loan for tiny house financing?
• Best tiny house loans
• Pros and cons of a personal loan
• Alternatives to personal loans
• Should you take out a tiny home loan?
• How to finance a tiny house with a personal loan
• FAQ

Why consider a personal loan for tiny house financing?

Tiny homes may not qualify for traditional mortgages for several reasons. For example, the house won’t qualify for most conventional mortgages if it’s under 400 square feet or not built on a permanent foundation.

Some tiny homes may not meet either requirement, making a personal loan a better option. Personal loans have other advantages, including flexibility and an approval process that’s often much simpler than applying for a mortgage. You can also use a personal loan for home improvements, so you can use it to spruce up the place if you have money left over.

Best tiny house loans

Your tiny house may not qualify for a traditional mortgage, but several financing options are available. 

Personal loans, which you can use for almost anything, are one of the best ways to finance a tiny home, but the personal loans available may vary based on your credit score. Different credit score ranges will qualify for various personal loans:

Credit score rating	Credit score range
Poor	300 – 579
Fair	580 – 669
Good	670 – 739
Very good	740 – 799
Excellent	800 – 850

Knowing your credit score ahead of time can be helpful so you can apply for personal loans for which you have good approval odds. If you don’t know what’s on your credit report, you can check it for free on AnnualCreditReport.com. 

To view your credit score and not just your credit report, try services such as CreditWise from Capital One or Chase Credit Journey. These services are free, updated weekly, and available even if you aren’t a customer. They also won’t hurt your credit score.

Best for excellent credit: LightStream

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Editorial rating: 4.8 out of 5

• Loans from $5,000 – $100,000
• Rate Beat program promises to offer rates 0.10% lower than the competition
• 0.50% discount with autopay

LightStream is our top-rated personal loan for excellent credit, offering fixed APRs of 7.49% to 24.49% when you use autopay. Applying for a personal loan with LightStream is as simple as 1-2-3. That’s more than just a cliche; there are only three steps: 

1. Apply online. 
2. Accept the loan agreement.
3. Start using your loan. 

Repayment terms are 24 to 144 months, depending on the loan type. Another reason LightStream makes the list is it offers specific loans for tiny homes and park models. The APR on these loans starts at 8.49%. LightStream also has land purchase loans starting at 8.49% APR.

• Credit score category: Good to excellent
• Soft credit pull to check rates? Yes
• Loan amounts: $5,000 – $100,000
• Deposit time: Same-day funding available
• Origination fee: $0
• Late fee: $0
• Repayment terms: 24 – 144 months
• Interest rates (APR): 7.49% – 24.49% for personal loans; 8.49% and up for tiny home financing

Best for good credit: SoFi

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Editorial rating: 5 out of 5

• Loans from $5,000 – $100,000
• Same-day funding available

SoFi is our top pick for customers with good credit. Its fixed APR isn’t the lowest on this list, but like many of SoFi’s products, there are no required fees.

• Credit score category: Good to excellent
• Soft credit pull to check rates? Yes
• Loan amounts: $5,000 – $100,000
• Deposit time: Deposit time: Same-day funding available
• Origination fee: 0% to 6%
• Late fee: $0
• Repayment terms: 24 – 84 months
• Interest rates (APR): 8.99% – 23.43%

Best for fair credit: Upgrade

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Editorial rating: 4.9 out of 5

• Personal loans of $1,000 – $50,000
• Pay your loan off early with no prepayment fees
• Get funds within 1 day of clearing necessary verifications

Upgrade is our top pick for fair credit because it recommends a credit score of at least 600. Personal loans with Upgrade start at $1,000. You’ll likely need a larger loan than that to finance your tiny home purchase, but you can also use Upgrade’s loans for home improvements. Upgrade’s loans have fixed APRs.

Another unique feature of Upgrade is a $200 bonus when you open a checking account and make three debit card transactions. Its checking account has no fees and includes 2% cash back on everyday purchases. You can also use Upgrade’s loans for major purchases, including tiny homes.

• Credit score category: Fair to excellent
• Soft credit pull to check rates? Yes
• Loan amounts: $1,000 to $50,000
• Deposit time: Within 1 day
• Origination fee: 1.85% – 9.99%
• Late fee: $10
• Repayment terms: 24 – 84 months
• Interest rates (APR): 8.49% – 35.99%

Best for thin credit: Upstart

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Editorial rating: 4.8 out of 5

• Upstart’s model considers factors such as education and employment history in its approval decisions
• Checking your rate won’t affect your credit score
• Loan amounts: $1,000 – $50,000

Upstart is our top pick for borrowers with little to no credit because the minimum credit score to apply is 300—the lowest score possible. Upstart has competitive APRs that start at 6.7%.

Upstart can offer low APRs because it considers factors such as education and employment in its APR calculation. This is also part of why Upstart is the best pick if you have little to no credit. You can also choose from three-year and five-year terms, and there are no prepayment penalties. However, Upstart charges origination fees and late fees.

• Credit score category: All credit scores
• Soft credit pull to check rates? Yes
• Loan amounts: $1,000 – $50,000
• Deposit time: 1 – 2 business days
• Origination fee: 0% – 10% of the target amount
• Late fee: The greater of 5% of monthly past due amount or $15
• Repayment terms: 36, 60, or 84 months
• Interest rates (APR): 6.7% – 35.99%

Pros and cons of a personal loan for tiny home financing

As with most financial products, using a personal loan for tiny home financing has its share of pros and cons.

Pros

• Fast funding (same day in some cases)

• Less paperwork than a mortgage

• Unsecured, so it doesn’t put your home on the line

• No need to save for a down payment

• Can use the funds for other purposes

Cons

• Higher interest rates than mortgages, especially with poor credit

• Shorter repayment terms

• Higher monthly payments

Alternatives to personal loans for tiny homes

Possible alternatives to using a personal loan for tiny homes include the following.

Mobile home financing

It may be possible to use mobile home financing for your tiny home. The proper term for these homes today is manufactured home, and several funding options exist. For example, you can finance them with a Federal Housing Authority (FHA) loan. The maximum loan amounts from the FHA are $69,678 for just a manufactured home or $92,904 for the home and lot. Loan terms range from 15 to 25 years.

RV loan

You can apply for an RV loan if your tiny home is on wheels. However, it must be certified as a recreational vehicle (RV) to qualify for this financing option. One way to find a property that allows for RV loans is to purchase from a Recreational Vehicle Industry Association member.

Depending on the lender, RV loans can have terms as long as 15 years. These are secured loans, meaning you must use your home as collateral. These loans are available from online lenders as well as brick-and-mortar banks.

Home equity loan or line of credit

If you already have a traditional home, you can borrow against its equity to purchase a tiny house. With a home equity loan, you can borrow a lump sum upfront and make fixed monthly payments. This differs from a home equity line of credit (HELOC), which lets you pull out funds as needed. With a HELOC, you often pay interest during the draw period and then pay down the balance once you stop drawing on the line of credit.

A home equity loan might make the most sense given tiny homes’ $30,000 to $60,000 price tag. However, a HELOC could be better in specific scenarios, such as when you want to upgrade or repair your tiny home.

Tiny house mortgage

Most lenders set minimums for traditional mortgages, so tiny homes don’t qualify. However, certain lenders offer specific mortgages for tiny homes. You can use these to buy or build tiny homes and similar properties, such as park models—prebuilt trailers that look like a house.

These mortgages are often similar to personal loans in several ways. They might have same-day funding available, with loan amounts of $5,000 to $100,000. However, that also means higher APRs and shorter repayment terms than traditional mortgages.

Should you take out a tiny home loan?

Taking out a tiny home loan can be a simple decision, but consider the following before you move forward.

Your budget

As with many financial decisions, the first item to consider is your budget. The maximum recommended debt-to-income (DTI) ratio is 36%, and your housing costs are part of that calculation. DTI is your monthly debt payments divided by your gross monthly income. For example, if you have monthly debt payments of $1,625 and your monthly income is $6,250, your DTI is 26% ($1,625 / $6,250).

When considering your tiny home purchase, add the loan amount you would need for your tiny home into the DTI calculation. If the loan payment and other costs cause you to exceed the recommended DTI, you may need to consider other financing sources or a longer term.

Check zoning laws and permitting

You’ll likely face zoning laws and permitting requirements when purchasing your tiny home. Check these with your local building department to determine what laws will affect your tiny house. In addition, you should find out the permitting requirements and any applicable fees.

Shop around

Before applying, you should always shop for the best rates and terms by prequalifying with lenders that will allow you to. 

When you should and shouldn’t apply for a tiny home

Whether you should apply for tiny home financing is a personal decision, but several factors influence your approval odds. Here are three examples:

Scenario	Explanation
Poor credit	As we showed in the table above, poor credit ranges from 300 – 579. You may qualify for tiny home financing with Upstart, but approval is never guaranteed. In addition, a higher credit score will always improve your approval odds.
High DTI	As we mentioned, DTI is the ratio of your debt to your income. If your DTI with a tiny home loan would exceed 36%, it may be best to reduce this number before you apply.
Good credit	If you have a credit score of at least 670, you’ll improve your approval odds for tiny home financing.

How to finance a tiny house with a personal loan

Financing a tiny home with a personal loan is often a quick and easy process, especially compared to applying for a mortgage. The amount you will borrow is often the home’s purchase price. Since you aren’t taking out a mortgage, no down payment is involved.

One significant benefit of using a personal loan for a tiny home purchase is the speed of funding. In many cases, same-day or next-day funding is available. Preapproval can also be similarly fast, with some lenders letting you prequalify in as little as 60 seconds.

Choosing a lender comes down to finding one that aligns with your needs and goals. For instance, some lenders are best for excellent credit, and some are ideal for little to no credit. At the same time, some lenders have loans for various purposes, including tiny homes. 

Some lenders include factors other than your credit score when setting rates. It’s important to consider what you need and how each lender aligns with your needs before applying.

What will repayment look like?

Repayment may vary depending on factors such as your credit score and the loan size. However, for simplicity, we’ll assume you have good to excellent credit and need a $50,000 tiny home loan.

Loan term	Monthly payment
36 months at 10.49% APR	$1,625
48 months at 11.74% APR	$1,310
60 months at 12.49% APR	$1,125
72 months at 13.24% APR	$1,010
84 months at 14.99% APR	$965

As you might notice, longer repayment terms decrease your monthly payments. However, longer repayment terms also have higher APRs, which might increase the total amount you pay over the life of the loan.

FAQ

What is the best tiny home financing option for bad credit?

Our research shows Upstart is the best tiny home financing option for bad credit. The minimum credit score to apply for a personal loan with Upstart is 300—the lowest score possible.

Can I get a tiny home mortgage?

This article discusses personal loans for tiny homes, but several lenders offer specific mortgages for tiny houses. Check to see whether your lender offers tiny home financing.

Do any lenders specialize in tiny house lending?

Most lenders don’t specialize in tiny house lending, but some offer specific loans for tiny homes. LightStream is one example of a lender that provides tiny home financing.

Is buying or building a tiny house more expensive?

Buying a tiny home is often more expensive than building one. However, it’s not uncommon to underestimate the cost of building a house, especially if you aren’t experienced. Thus, buying a tiny home will provide you with the most predictable costs.