Tiny Home Financing: Personal Loans for Your Tiny Home
Trevor Mahoney is a financial services writer and content creator based out of Los Angeles, California. He holds a Bachelors of Science in Finance from Santa Clara University. In his free time, he enjoys hiking and lounging on the beach.
At a Glance
The concept of a tiny home evolved over the last few years and has taken the world by storm. While the trend of living in a tiny home has been around for decades, there was a resurgence of interest during COVID-19 that brought this style of living to the forefront of everyone’s minds once again. Despite being small, tiny homes can come with an expensive price tag that is difficult to meet completely out of pocket, causing many to turn towards financing.
In this article, you’ll learn:
What is a tiny home financing?
Tiny home financing is the process of receiving the funds needed to outright purchase or build a tiny home from a type of lender. As the borrower, you then pay back the funds over time in, typically, monthly installments with interest. Financing a tiny home is like any other form of financing for a good or service and can allow you to get your hands on the tiny home of your dreams.
How do tiny home loans work?
Most tiny home loans will work in a multi-step process:
- Determining the cost of your tiny home.
- Reaching out to different lenders to get quotes on interest rates and all-around offers.
- Submitting for prequalification, if applicable.
- Selecting a lender’s offer and signing a contract.
- Receipt of funds and purchase of tiny home.
- Monthly repayments begin.
As evident from the above, securing a loan to build a tiny house or purchase a tiny house is a relatively straightforward process. However, things begin to get more complicated when choosing between different forms of financing, as each type comes with its own caveats.
Tiny-home financing: What are the options?
There is no single perfect way to finance a tiny home. In fact, as a potential borrower you have a wide range of financing options to consider:
1. Personal loans
Personal loans are one of the most common methods for financing not just tiny homes, but many large purchases. This simple loan type offers borrowers a lump sum of money that is paid back in monthly installments. APRs can range from 6-36% depending on factors such as credit history, credit score, income level, and more.
Most personal loans have a tenure of 2-7 years, on average, so those considering this method of financing should be certain they are in strong financial standing to take on longer-lasting debt. Personal loans can be both secured or unsecured, depending on the lender and your individual factors, meaning that collateral might be required.
Explore different types of personal loans and their varying conditions.
See how much you owe with a personal loan.
2. Home equity loan and HELOC
When looking at tiny house loans, home equity loans or home equity lines of credits are another option to consider. This type of financing is more unique in that you already need to have ownership over some type of home to be able to utilize it. A home equity loan allows you to take out a lump sum of money, but it is a secured loan that uses a portion of the equity in your home as collateral.
In most cases, a home equity loan or home equity line of credit will cap at about 85% of the equity you own in your home. Assuming you have been making mortgage payments for years, you likely have enough equity built up to afford a loan for a tiny home.
Learn more: Home Equity Loan and HELOC
3. Financing from tiny-home builders
Tiny home builders will likely offer buy now, pay later plans that have competitive interest rates to those listed by third-party lenders. Receiving tiny home lending directly from the seller of the home can be a convenient option, saving you from having to seek out someone else, but be sure to compare their offer to that of third-party lenders to see who provides the best deal.
4. RV loans
For unique tiny homes that are mobile and ready to go at a moment’s notice, like an RV, an RV loan may be a viable option to consider. Typically offered by banks, credit unions, and other types of lenders, you can potentially secure an interest rate as low as 3.99% for a tenor of five to ten years. Keep in mind, however, that RV loans are like auto loans in that the security on the loan would be the tiny home you are purchasing. This means that a failure to meet your payments could result in the repossession of the tiny home by the lender.
Learn more: All You Need to Know About RV Loans
Finally, when looking at financing for tiny homes you might be able to consider a standard mortgage. There are usually square footage requirements associated with a mortgage and restrictions, such as the property needing to be built on a foundation, but it’s possible that your tiny home may qualify. Reach out to qualified lenders to see if the tiny home you are looking at purchasing or building qualifies for a mortgage.
Things to keep in mind before financing a tiny home
Prior to settling on a financing method for your new tiny home, there are a few factors you should take into consideration ahead of time:
- Is it worth waiting a little bit longer to save and make the payment with cash?
- How much will I need for this loan?
- Does your credit score qualify for a fair APR?
- Will the loan require collateral, and can you afford it?
- You will need land to build it on or some way to transport it
- Will you have funds leftover to furnish your tiny home?
- What financing method will be the smartest economic choice for you?
- Do you need to make a down payment?
Not only is choosing to finance a tiny home a big decision but acquiring one in the first place is just as big a deal. Be sure you have considered all the factors before making the decision to go so far as to investigate tiny home financing options.
Is financing a tiny home a good idea?
Financing a tiny home usually isn’t a small purchase that can be afforded out of pocket for the average person. This makes financing the purchase an excellent idea so long as you don’t take on more debt than you can handle. Additionally, if your credit score isn’t the best, you may not be offered a fair interest rate. If you are in a situation where financing will only cost too much in the future, consider taking the time to delay the purchase until you can afford to pay with cash.
Yes, tiny house finance loans for people with bad credit do exist, but it’s important to realize that you likely won’t receive a favorable interest rate. This means that it may cost you far more in the long run to finance the tiny home, rather than buy it outright with cash.
The size of tiny houses can range depending on whether they are built to be mobile or on a foundation, but traditional tiny houses usually range from 100-400 square feet internally.
The price of a tiny home can vary drastically depending on the size, complexity, location, and a few other factors. However, anywhere from $10,000 all the way up to $100,000 is what you can expect to pay.
While tiny house insurance wasn’t widely available in the past, it has become far more widespread in recent years. This can help protect against natural disasters and other factors that may ruin your beautiful new tiny home.
The length of tiny home loans varies depending on the type of financing you seek. Personal loans, for example, have tenors ranging from two to seven years on average, whereas home equity loans may have longer tenors that go beyond 10 years. Overall, you can usually find a loan that offers a longer tenor, allowing you to spread the payment out over more years.