Tiny Home Financing: Compare Loan Options
Tiny homes can save you a lot of money on housing and property costs—but financing one isn’t as straightforward as a traditional mortgage. Options include personal loans, mobile home or rv loans, home equity loans, and HELOCs.
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Tiny homes are becoming a trend for Americans who want to save on housing costs or simplify with a minimalist lifestyle. These 100- to 500-square-foot homes on small lots clock in between $10,000 and $50,000.
Unfortunately, the small price tag doesn’t make securing tiny house financing as simple as you might think, because these properties don’t usually qualify for traditional mortgages. This guide will break down how to find alternative financing options for tiny house buyers.
In this guide:
- Personal loans: Our recommended option
- Mobile home financing: If you rent the land beneath your home
- RV loans: If you have a tiny home on wheels
- A home equity loan or HELOC: If you already own a home.
- A tiny house mortgage: Not a common option; more info below.
Personal loans for tiny house financing
Personal loans are a popular option for tiny homes, as they’re extremely flexible and easy to come by. The application process is less detailed and time-consuming than a traditional mortgage, and you can usually get funding in just a few days.
Personal loans are also flexible, so you can use the funds not just to purchase your tiny home, but also to furnish it, decorate it, and cover any other move-in expenses.
- Fast funding (usually just a few days)
- Less paperwork than other options
- Unsecured, so it doesn’t put your property at risk
- Can use the funds for other expenses
- No down payment required
- Higher interest rates than other options if you have poor credit.
- Shorter repayment terms
- Higher monthly payments
Mobile home financing
Mobile home loans exist for manufactured homes that are built in one place and moved to another. These loans are typically meant for people who own their homes, but not the land it’s placed on.
- Low fees and closing costs
- Simple qualification process
- Low or no down payment requirements
- May have higher interest rates than other options.
- No first-time homebuyer options
- Only available for the financing of the home, not the land
>> See Options: Mobile Home Loans
RV loans for tiny home financing
If your ideal tiny home is on wheels, an RV loan may be a financing option. To be eligible, your house will need to be certified as a recreational vehicle. To find a qualifying property, consider purchasing from a member of the Recreational Vehicle Industry Association.
For an RV loan, you’ll have to use your tiny home as collateral, as you would for a traditional home or auto loan. You can find them through brick-and-mortar banks and a few online lenders.
- Usually available with a fixed rate.
- May offer longer repayment periods.
- Lower interest rates compared to personal loans.
- Uses your tiny home as collateral.
- House must be RV-certified.
- Only available on primary residences.
>> See Options: Best RV Loans
Home equity loans & HELOCs
If you’re already a homeowner and plan to use your tiny house, for example, as a guest house, second home, or vacation property, you may be able to use your primary home’s equity to pay for the new digs.
Home equity loans let you borrow an upfront, lump sum and make fixed payments toward the balance on a monthly basis, using your primary home as collateral.
Home equity lines of credit, on the other hand, let you pull funds as needed, much like a credit card. Often, you’ll pay only interest during the draw period, and then pay down the balance once you stop drawing on the line of credit.
Generally, home equity loans make the most sense, as they provide more security in payments. But HELOCs may be good if you’re not sure of your tiny home costs or you plan to build it out over an extended period.
- Come with fixed or adjustable rates
- Funds can come via lump sum or as needed
- Interest rates are usually lower than personal loans
- Uses your home as collateral
- Adds an extra monthly payment
- Come with various closing costs and fees
Tiny house mortgages
The majority of mortgage lenders have loan minimums that far exceed the prices of tiny homes. Many also require the home to be a permanent structure and comply with local building codes.
Still, some lenders offer tiny house mortgages called “chattel” mortgages. They’re typically used to finance things like manufactured homes and other pieces of personal property, and they come with higher interest rates and shorter terms than other financing options.
Pros of tiny house mortgages
- Come with fixed interest rates
- Mortgage interest may be tax-deductible
- Fast funding
Cons of tiny house mortgages
- High interest rates
- Short repayment terms
- Uses your tiny home as collateral
>> See Options: Best Mortgage Lenders
3 things to consider before financing a tiny house
To determine the best route for purchasing your tiny home, take these three steps.
1. Check your local zoning laws and permit procedures
You’ll likely face zoning, permitting, and regulatory requirements wherever you plan to place a tiny home. Check with your local building department to learn the rules you’ll need to comply with, as well as what permits you’ll need and how much they’ll cost before building.
2. Make sure the payments line up with your budget
Financial experts generally recommend your monthly debt payments take up no more than 36% of your income—and that includes your housing costs.
Before finalizing your tiny home loan, calculate your debts, and make sure you fall under this threshold. If the loan payment and other housing costs would take your debts beyond this point, you may need to consider a different financing product or a longer repayment term.
Be sure to include rental or hook-up fees you’ll incur from parking in a campground, RV park, or other community; and add in other expenses you might see, too, such as storage facility costs.
3. Always compare options to find the best rates
As with any loan, it’s important to shop around before choosing your lender. Get quotes from at least three institutions, and compare lenders on service, too.
Because lenders vary greatly in rates and terms, just a few extra minutes of research can equal serious savings over the course of your loan.
Author: Aly Yale