If you want to downsize or are concerned about the environmental impact of a larger home, a tiny house represents an opportunity to simplify and improve your lifestyle.
Unfortunately, you typically can’t finance a tiny home with a traditional mortgage because the cost falls under the minimum loan amount for many lenders. A tiny house costs an average of $30,000 to $60,000 to build, according to HomeAdvisor.
While a traditional mortgage may not be an option, there are other ways to finance a tiny house, like personal loans, builder loans, and RV loans.
It can be a challenge to find lenders that offer small mortgage loans. Luckily, there are other financing options that allow you to borrow money to purchase or build a tiny house.
Personal loans can be used for almost any purpose, like paying off credit cards, covering medical expenses, or paying for a tiny house. With personal loans, you receive a lump sum payment upfront and pay it back in fixed installments over time, usually one to five years or longer. The loan amount and interest rate you qualify for typically depend on your income, credit score, and the amount of debt you have. Most personal loans have fixed interest rates.
Personal loans range from as little as a few hundred dollars to $100,000 or more. Keep in mind that if you’re building a luxury tiny house, it can cost more than $180,000, according to HomeAdvisor. That means you may not be able to borrow enough to cover it with a personal loan.
Some tiny home builders or contractors offer financing to help cover the cost of the home. A partnership with a bank or lender usually backs these loans.
Generally, the rates for these loans are based on your credit. Builder loans often come with longer loan terms than personal loans, sometimes up to 30 years. A down payment may be required to secure a builder loan.
Your tiny home may qualify for an RV loan if it meets the standards set by the Recreation Vehicle Industry Association, National Highway Traffic Safety Administration, and National Fire Protection Association. To qualify for an RV loan, you’ll need to meet the lender’s requirements for credit, income, and other factors.
RV loan terms can range from 10 to 15 years or even longer, depending on the lender. Keep in mind that some RV loans may require you to use your tiny house as collateral. In addition, not all lenders that offer RV loans provide financing for tiny homes, so check with the lender before applying.
If you already own a home, you can use the equity you’ve built up to get a home equity loan or second mortgage. A home equity loan uses your home’s equity as collateral to secure funds to use for almost any reason.
Lenders generally limit the amount you can borrow to 80% of your home’s equity, although it may also depend on your credit history, income, and the value of your home. Home equity loans typically come with a fixed interest rate and predictable monthly payments that you make over a set repayment term.
Because home equity loans use your home’s equity as collateral, there’s a significant risk if you can’t make your payments. If you default on your loan, the bank can foreclose on your home.
Taking out a tiny house loan is a big decision, even if the cost is less than a traditional mortgage. Here are some details to keep in mind if you’re considering taking out a loan to fund the purchase of a tiny home:
A tiny house loan may be easier to get approved for than a traditional home mortgage. Tiny house loans are generally smaller than mortgage loans and may have less stringent requirements, depending on the lender.
However, you still need to meet the lender’s underwriting requirements, which may include income, credit score, credit history, and other factors. Lenders typically perform a hard credit check during the application process to determine your lending risk as a borrower and to set interest rates. It’s best to shop around to compare loan options and find the best rates to meet your needs.