A tiny house may be a third of the cost of traditional real estate, but even so, not everyone would have enough savings to pay off their dream abode. The good news is that there are funding options available.
So, what is the best tiny home financing option? In this article, we discuss everything from joining a credit union, borrowing from a personal lender, to using your home’s equity in securing your tiny house funds.
Read on to learn everything you need to know about the best funding options, as well as some tips on how to get the lowest rates possible.
Getting declined for traditional lending may be more about what banks consider a “house” than it is about your credit score. Traditional mortgages won’t work for tiny properties because of key restrictions and definitions.
Typically, mortgage lenders have a minimum $50,000 loan amount, which can be restrictive for tiny home owners hoping to get smaller loans for their tiny house.
Lenders also perform a mandatory home appraisal so they can understand your property’s market value, which can be difficult to do for a tiny house. As a relatively new type of property, tiny houses don’t really have a fixed market value yet.
In some cases, securing a traditional mortgage can be impossible just for the fact that it is a non-traditional dwelling unit, which applies to any tiny house on wheels and homes under 500 square feet.
If you’re keen on securing a tiny house mortgage for its low-interest rates, keep in mind that you’ll have to deal with prepayment penalties and a 20 to 30-year mortgage term. Being debt-free is the main reason tiny house owners have downsized in the first place, so setting yourself up with more than a decade long debt can offset the supposed financial benefits of tiny home living.
How to Finance Your Tiny House
Financing options for a tiny home may not be as flexible as traditional lending, but they’re no longer as limited as they once were. Listed below are six accessible lending options that could bring you one step closer to earning your own tiny home.
1) Join a Credit Union
Pros: APRs are typically lower, accessible to borrowers with low credit score
Cons: Membership is not guaranteed, difficulty finding one based on your location, limitation on apps and ATM options
Credit unions offer similar banking services like lending and opening a savings account. Because they are non-profit, credit unions usually offer higher rates for savings accounts and lower rates for personal loans.
Just like banks, credit unions can provide both unsecured and secured loans. With lower interest fees and more flexible repayment terms, getting a secured tiny house loan through a credit union is one of the best options you can try if you don’t have the best credit.
Credit unions are essentially member-owned and community-driven. They often serve a community of people sharing the same location, faith, interests, or circumstances. Even so, there are great credit union options like Navy Federal Credit Union that allow memberships from people without military affiliation.
While some credit unions accept a one-time donation of up to $25 as a membership fee, others might have more exclusive eligibility requirements.
2) Finance Through a Builder
Pros: APRs ranging from 5% to 20%, accessible regardless of geographical location and financial affiliation
Cons: Must meet a certain credit score, downpayment is required
With this option, your builder might act as the direct lender or they can also connect you with their network of lenders.
The most straightforward option is to work with an RVIA certified tiny house builder since they are typically connected with lenders and financial institutions that have worked out contracts specifically made for tiny houses. On the other hand, there are also plenty of other non-RVIA certified builders who provide agreeable terms.
For instance, Sierra Tiny Houses offers a 5 to 25-year direct lending option for prospective homeowners with a minimum score of 600. They can also connect you with a subprime lender if you have a credit score of 550.
Your loan terms vary depending on your monthly payments, your initial down payment, and payment period. Most tiny house builders will ask for a 10 to 25% down payment upfront.
Some tiny house builders that offer financing options include:
- Tumbleweed in Colorado
- Mustardseed Tiny Homes in Georgia
- Tiny Heirloom in Oregon
- Cornerstone Tiny Homes in Florida
- B&B Tiny Houses in Massachusetts
- Indigo River Tiny Homes in Texas
- New Frontier Tiny Homes in Tennessee
- Backcountry Tiny Homes in Washington
- Tiny House Listings
3) Take Out a Personal Loan
Pros: No collateral required, multiple personal loans providers to choose from, typically no prepayment penalties
Cons: Higher APRs, higher monthly down payments, usually comes with an origination fee
For DIYers or those working with non-RVIA certified builders, personal loans might be your best option. Online personal lending companies don’t discriminate reasons for loaning and will lend you a loan amount up to $50,000 (with some up to $100,00) for your tiny home.
Because terms vary depending on company policies and procedures, doing your research definitely pays off. For instance, the lending company Upstart considers your education and career when determining your APR. So if you have a thin credit history but a promising career background, you might be able to land better terms.
Lenders like LightStream offer lower rates for RVIA-certified builds. Again, it’s important to exhaust your options when looking for the best personal loan service.
Most personal lenders require that you meet a minimum credit score. APRs typically range from 6% to 35%, with much shorter repayment terms capping at 7 years. As such, your monthly payments will be higher than usual.
4) Apply for an RV Loan
Pros: Lower interest rates, flexibility in provider options, RVIA certified builders can connect you with lenders
Cons: The tiny house will serve as the collateral, longer payment terms
RVIA-certified designs, meaning builds that follow the building codes and standards of the Recreational Vehicle Industry Association, have more flexible financing options.
RVs have been around a lot longer than tiny house on wheels, which means there are already lending terms in place made specifically for RVs and similar type properties.
RV loans come out as the more cost-effective option compared to other loans because it is made against the tiny house instead of your personal credit. On the downside, this also means that your tiny house will be repossessed by the bank or lender if you default on your payments.
While it is possible to apply for an unsecured loan, you will likely have to pay a minimum of 20% down payment, pay a higher interest rate, and have good credit.
Compared to personal loans, RV loans have more cost-efficient terms. APRs are typically lower, ranging from 4% to 15% with repayment terms of up to 15 years.
5) Use Your Home’s Equity
Pros: Ideal for long time homeowners who want a second property
Cons: Your primary house is the collateral
Taking out a home equity is another option for people who already have primary real estate. Keep in mind that the loan will be secured against your primary house, which means it can be repossessed by the bank to satisfy losses.
Unlike other lending options, the loan amount you can take on a home equity is dependent on your combined loan-to-value ratio. An updated appraisal is necessary to determine your home’s current market value.
If you’re lucky, lenders might let you borrow up to 85% on your home equity if you have a great financial record.
To calculate your loan-to-value ratio, divide your outstanding loans by the value of your home. For instance, if your home is worth $250,000 and you owe $100,000, it means your loan-to-value ratio is 40%. The amount you can take out depends on the lender’s loan-to-value ratio; the higher it is, the more money you can take out.
Taking out home equity can be risky and it’s only an ideal situation if:
- You have arranged to rent out your tiny house or primary home
- A tiny house appraisal guarantees it will add value to your property
- You have a secure stream of income and will have no problems paying back the equity loan
6) Look Up Chattel Mortgages
Pros: Accommodates property on rented land, lower down payment and interest rates
Cons: Providers are limited, your tiny house will be the collateral
For most tiny house owners, renting land is the only option. Unfortunately, owning your land is a common requirement for most mortgages.
Chattel mortgages are a niche financing option for manufactured homes that encompass movable homes in general. Chattel mortgages accommodate properties that are not on their own property, including family land, rental sites, land that owners are currently paying for, and land-lease spaces.
Like traditional mortgages, chattel mortgages are a secured loan. In the event of a default in payments, your tiny house will be turned over to the lender.
Unfortunately, there aren’t as many chattel mortgage providers as there are with other types of loans. Country Place Mortgage serves 29 states including Texas, Florida, California, and Oregon, offering down payments as low as 3.5%.
Top Tiny House Personal Lenders
Taking out a personal loan is one of the most accessible options for purchasing your very own tiny abode. With a loan amount as high as $50,000, you can make your tiny house dreams come true faster.
We listed down some of the most trusted personal lenders below that have been tried and tested by builders and tiny house owners.
- Provides low interest rate for applicants with good credit
- No prepayment penalties for unsecured loan
- No down payment required
- Can receive money same day as application
- Borrow from $5,000 to $100,000
- Payment up to 84 months for loans up to $100,000 and 72 months for loans $24,999 and below
- 5.95% to 16.79% APR
- Fixed interest rate
- Can make automatic payments through bank account
- No prepayment penalties but charges late payment fee
- Lenders can apply with a credit score as low as 600
- Borrow between $1,000 and $40,000
- Payment terms of 36 or 60 months
- 6.95% to 35.89% APR
- APR is determined by non-financial factors including education and career
- No prepayment penalties
- Can receive money one business day after application
- Borrow from $1,000 to $50,000
- Payment terms of 36 months or 60 months
- 6.46% to 35.99% APR
- Lenders can apply with a credit score as low as 620
- No prepayment penalties
- Late payment fees can be waived if you have three or more consecutive on-time payments
- Repayments can be paused if you suddenly become unemployed
- No origination fees
- Borrow from $5,000 to $100,000
- Payment terms of 24 to 84 months
- 5.99% to 20.01% APR
- No prepayment penalties
- Adding a co-borrower with good income and showing proof of retirement savings are two other ways to qualify for the lowest rates
- Can get money within 48 hours of approval
- Borrow between $7,500 and $40,000
- Payment terms of 24 to 60 months
- 5.99% to 29.99% APR
No Loan? No Problem
Is applying for a loan out of the question? Consider the following alternative options:
Lower Tiny House Costs: Consider getting a cheaper design or a smaller-sized model if you can’t afford a specific design. You could ask builders about a customized design that has all the things you need and none of the extra features to keep costs down.
Participate In Crowdfunding: Platforms like GoFundMe allow people to set up crowdfunding accounts for various purposes. You can set up a profile and share it with friends, family, and relatives to help fund your buying budget.
Rent To Own: If you don’t have money for a down payment or don’t have the best credit score, a rent-to-own lease agreement can help secure your tiny house future. Read our article on renting to own a tiny house to learn everything you need to know.
Because tiny house financing is not as standardized as more traditional forms of lending, different funding options will provide different benefits and disadvantages. Make sure that you know your credit score before applying for a loan, or simply apply for a pre-qualification, so you can calculate your payment terms.
A tiny home may be small, but buying it is a big responsibility. Before you even invest a single dollar on it, make sure that downsizing is the right move for you and your family. After all, tiny house living isn’t a hobby, it’s a brand new way of life.
Hey, there! We're Ivan and Manuela from Croatia, and we're crazy about tiny houses. We don't own one (yet).
This website is a result of our passion to share all the knowledge, photos, tips and tricks that we were able to learn while studying everything possible about the tiny house movement.