Dreaming big about going tiny? Knowing how to finance a tiny house can turn those dreams into reality.
Although you might save over the long haul, tiny houses don’t come with tiny upfront costs. You usually can’t use a traditional mortgage to pay for a tiny house, either. Instead, you might need to use a personal loan, RV loan or another type of tiny house financing.
Tiny houses are gaining popularity across the country as more people embrace minimalist living. But financing these petite homes can be tricky since they often don’t qualify for traditional mortgages. In this comprehensive guide, we’ll go over if you can get a tiny house loan and what financing options are available.
What is Considered a Tiny House?
Before we dive into tiny home loans, let’s clarify what constitutes a tiny house. While definitions vary, tiny houses generally share these features:
- Less than 400 square feet of living space
- Built on a trailer with wheels for mobility
- Includes basic amenities like a sleeping loft, kitchen, bathroom, and living area
- Off-grid functionality with compact or alternative energy systems
Part of the appeal of tiny houses is their small footprint and flexibility. Tiny homes can be located in a variety of settings, from vacant land to backyards, to form unique tiny house communities.
Can You Get a Mortgage for a Tiny Home?
When financing a traditional house, a mortgage loan is commonly used. But securing a mortgage for a tiny house is difficult for several reasons:
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Size – Most tiny homes are under 400 square feet, Many mortgage lenders have minimum size requirements that exceed that
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Foundation – Tiny houses are typically built on trailers not permanent foundations. Lenders often require a fixed foundation to qualify for a mortgage.
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Loan limits – The low cost of tiny homes, often $20,000 – $50,000, falls below most mortgage lenders’ minimum loan amounts.
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Resale value – Tiny houses depreciate faster than site-built homes. This makes it riskier for lenders to offer mortgages.
While rare, there are some niche mortgage lenders that may finance tiny homes. Qualifying criteria is strict and often requires the tiny home be built on a foundation.
Top 6 Ways to Finance a Tiny House
If a mortgage isn’t feasible, how can you fund your tiny living dream? Here are six common ways to finance a tiny home:
1. Personal Loans
Personal loans are a popular financing option for tiny houses. With a personal loan, you borrow a fixed amount of cash and repay it in monthly installments over 1 to 7 years. Interest rates and fees vary by lender, but expect APRs of 6% to 36%.
Pros:
- Fast and easy to qualify if your credit is decent
- Flexible use of funds
Cons:
- Short repayment terms mean higher monthly payments
- Unsecured, so higher interest rates
2. Secured Loans
Secured personal loans require an asset as collateral, usually your tiny home. This lowers the lender’s risk so may result in better loan terms. Secured loans have longer repayment periods than other personal loans, typically 10 to 20 years.
3. RV Loans
If your tiny house meets roadworthiness standards, you may qualify for a recreational vehicle (RV) loan. RV loans are secured by the home and may offer longer terms of 10, 15, or 20 years.
Pros:
- Lower rates and monthly payments than personal loans
- Built-in financing at some tiny home builders
Cons:
- Limited to movable tiny homes
- Require RVIA certification
4. Home Equity Loans
If your tiny home is a secondary residence on land you own, you can leverage your home equity for financing. These loans use your existing property as collateral to borrow a lump sum of cash.
5. Credit Cards
While not ideal, you can finance a tiny house with a credit card. This is best only for very small tiny home builds you can quickly pay off. High interest rates make long-term financing costly.
6. Peer-to-Peer Lending
Newer online peer-to-peer lenders match individual investors with borrowers. This provides expanded financing options. Lending terms are set between the borrower and lenders.
Tips for Improving Your Tiny Home Loan Options
While limited, financing for tiny homes is possible if you position yourself as an ideal borrower. Here are tips to boost your loan approval odds:
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Have excellent credit – A credit score over 720 will get you the best tiny home loan rates.
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Make a large down payment – Putting 20% or more down shows lenders you’re financially committed.
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Lower your debt-to-income ratio – Keep monthly debts low relative to your income.
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Add a foundation – Building on a fixed foundation opens up more loan opportunities.
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Offer collateral – Using your tiny home or land as security improves your chances.
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Build equity – Accruing equity in your land over time expands financing options later.
Tiny House Construction Loans
If you plan to build rather than buy your tiny home, tiny house construction loans can provide financing. These loan products help cover the upfront costs to build a custom tiny home from scratch:
Personal construction loans – Unsecured personal loans to fund construction costs.
Secured construction loans – A loan secured by the underlying land as collateral.
Home equity construction loans – Leverage available equity in an existing property you own.
Custom lending programs – Builder-sponsored or niche lender construction loans.
Builder-backed financing options are worth exploring if you’re contracting with a tiny home company. Ask potential builders if they offer or facilitate any kind of construction financing.
Is a Tiny House Loan Right for You?
Before pursuing tiny home loans, be sure this type of financing aligns with your goals and lifestyle. Consider these key points:
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Tiny home loans have higher rates and shorter terms than mortgages. Monthly payments will be higher.
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Loans for moveable tiny homes may limit parking options since lenders want collateral security.
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Reselling a financed tiny home may be difficult since loans may exceed resale value.
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Defaulting on a secured tiny home loan risks losing your home to the lender.
If you’re looking to downsize and save rather than invest and build equity, buying with cash may be wiser than financing. But tiny home loans can make sense if you plan to keep and live in your tiny house long term.
Weigh all your options to find the best tiny house financing strategy for your needs. And be sure to work with lenders who understand the unique considerations of financing these petite dwellings!
How much does a tiny house cost?
Like normal houses, costs for a tiny house vary wildly.
On average, a tiny home costs around $300 per square foot for prefabricated, and $250 to $450 for custom built. In contrast, traditional homes cost around $150 per square foot.
The cheapest option is to go the DIY route. Home Depot sells tiny home build kits starting at around $20,000. Custom-built or luxury models can easily exceed $100,000.
But the tiny house itself isn’t the only expense. You also need to consider:
- Permits: $500 to $2,500+
- Inspections: Up to $250
- Electrical hookups: $3,000 to $12,500
- Plumbing: $500 to $3,000 (labor only)
- HVAC: $1,500 to $4,000
- Delivery fees: $1.00 to $3.50 per mile
- Foundation: $5,000 to $8,000
- Land: Depends on location, but the U.S. average for one acre is around $16,000
- Furnishings: Varies, and may need to be made specifically for tiny living
- Insurance: Varies
The costs above are estimates. How much you’ll pay depends on where you live, what kind of tiny house you’re building and other factors. Before you go all-in, get quotes from several contractors.
Types of loans for tiny houses
How to finance a tiny house build? It’s a valid question. Often, it’s impossible to get a traditional mortgage on a tiny house. You might qualify if your tiny home is built on a permanent foundation, but that’s not the only mortgage requirement you have to meet.
Mortgage lenders generally have a minimum loan amount. You may need to find a small mortgage lender if your tiny house costs less than $50,000. Also, most mortgages require that the property is a certain square footage, and your tiny house might fall short.
That doesn’t mean you’re all out of options for financing a tiny home. Below you’ll find several loan products that could get you where you want to be.
| Financing option | Average rate | Who qualifies |
|---|---|---|
| Personal loan | 20.37-89.83% or higher, depending on credit score | Good and bad credit borrowers, but affordable rates generally require a 670 credit score |
| RV loan | 10.66% | Usually need at least fair credit (580 or higher), but some lenders are OK with lower scores |
| Home equity loan | 12.49% | Could qualify with 620, but will have more lender options with 660+ |
| Home equity line of credit | 15.51% | Some lenders accept scores as low as 620, but need 780 or higher for best rates |
| Builder financing | Varies by contractor | Varies by contractor |
Source: Closed loan data from LendingTree users in Q1 2024.
Alternatively, you could buy a tiny home with a credit card.
Note that credit cards tend to carry higher rates than loans (if you have good credit). At the time of this writing, the average credit card interest rate is 24.66%. You’ll also need to qualify for a card with a high credit limit (depending on how much your tiny home costs).
A personal loan provides a lump sum of money that you will pay back in equal monthly installments, plus interest. You can use a personal loan for nearly anything, including building a tiny house and furnishing it.
One of the best things about personal loans is their versatility. Online lenders are common, but you can also find personal loans at banks and credit unions. Personal loans also come in a wide variety of amounts, rates and repayment terms.
| Pros | Cons |
|---|---|
|
Can use a personal loan for tiny-house-related expenses, not just for the house itself Can be large or small, with short terms or long No down payments |
Not always the cheapest option if you have excellent credit Bad-credit borrowers might qualify, but rates will be high Can come with an upfront fee (called an origination fee) |
RV loans are not unlike car loans. They are usually secured, meaning your tiny home will serve as collateral. Still, there are exceptions. Lender LightStream offers an unsecured RV loan (in reality, it’s a personal loan specifically for RVs).
Because RVs typically cost much more than cars, RV loans tend to have higher borrower amounts and longer loan terms.
Not all tiny homes qualify for RV loans. You can’t finance an RV loan if your tiny home is attached to a foundation. It must also be movable, either by its wheels or on a trailer.
The Recreational Vehicle Industry Association (RVIA) has to deem your tiny house road worthy. Your home must also meet the U.S. Department of Transportation’s National Traffic Safety Administration standards.
| Pros | Cons |
|---|---|
|
RV loans can come with low rates Could have 20 years to pay off your loan, depending on the lender May qualify with fair credit |
Might need to make a 10% to 20% down payment Not all tiny homes qualify Probably won’t cover expenses like furnishings |
When you get a home equity loan (also called a second mortgage), you’re borrowing from the equity in your current home. This loan comes as a lump sum and typically has fixed monthly payments. This loan comes as a lump sum and typically has fixed monthly payments.
Like RV loans, home equity loans are secured, and the lender will use your current home as collateral. This makes home equity loans (and home equity lines of credit) risky. If you don’t pay your loan, your lender can foreclose on your home.
Although it’s never good to default on a loan, you must be sure you can pay back a home equity loan. It can be dangerous to put your primary residence on the line to build a tiny home.
| Pros | Cons |
|---|---|
|
Generally cheaper than personal loans No down payment You can use it for related expenses like land and furnishings |
Lender can foreclose on your home if you fall behind Generally requires a score between 620 and 680 Eats up equity in your home May pay closing costs (2% to 5% of loan amount) |
How To Finance A Tiny Home – What are Your Options?
FAQ
Is it hard to finance a tiny house?
What kind of loan can you get for a tiny home?
What credit score do I need to buy a tiny house?
Can you get a mortgage on a small house?
Can you get financing for a tiny home?
If you’re considering getting financing for a tiny home, you have plenty of options to choose from. You can pay for it with your savings if you have any, or you can get a personal loan, home equity loan, or recreational vehicle loan. Tiny homes are considered the most affordable and are preferred mostly by millennials.
Can you get a personal loan for a tiny home?
A personal loan is among the most common ways one can secure financing for their tiny home. Personal loans can be used for many things, including purchasing your tiny home. You can get a personal loan of up to $100,000, ensuring you get the flexibility you need to acquire a tiny home.
Can you get a mortgage for a tiny house?
Mortgages are notoriously hard to get for tiny homes. However, you can get a mortgage for a small house if you simply want to reduce your home’s footprint. Tiny house financing can also be done through a tiny house builder or a lender specializing in tiny house loans. Some of them may have 20-year terms, making them similar to a mortgage.
Can you buy a tiny home with cash?
It’s entirely possible to pay for a tiny home with cash, but your options for financing a tiny home are limited. Your primary loan options include personal and RV loan products.