Getting a Home Loan for Your Tiny House Dream

Tiny houses are all the rage these days With their cozy spaces and minimalist charm, it’s no wonder so many people are drawn to the idea of living small But when it comes time to get a loan to build or buy your tiny home, you may hit some roadblocks.

Traditional mortgages often don’t work for financing tiny houses. So how do you get the money you need? Don’t sweat it – with the right approach, your tiny house dreams can become a reality.

In this article, I’ll break down the ins and outs of getting a home loan for a tiny house. Consider this your guide to navigating the world of tiny home financing. Let’s dive in!

Why Tiny Houses Don’t Fit Traditional Mortgages

First, it helps to understand why traditional mortgages fall short for financing tiny homes. There are a few key reasons

• Size Most mortgages have minimum square footage requirements Tiny homes are generally 400 square feet or less – much smaller than lenders’ criteria,

• Foundation. Lenders often require homes be built on permanent foundations. Tiny houses on wheels don’t meet this standard.

• Cost. The average tiny home costs $30,000 to $60,000 to build. Many lender minimums exceed this price point.

• Resale value. Tiny homes depreciate like RVs, which makes them less appealing collateral for lenders.

So clearly, tiny living needs alternative financing options. Let’s look at what those options are.

Personal Loans

One of the most common ways to finance a tiny home is with a personal loan. Personal loans provide lump sums of cash, which you can use to cover tiny house building and buying costs.

Pros of personal loans:

• Available through many banks, credit unions, and online lenders

• Fast approval and funding

• Funds accessible as a lump sum

Cons to weigh:

• Short repayment terms of 3-7 years

• Higher monthly payments than mortgages

• Credit score impacts loan terms and eligibility

Personal loans work best if you have good credit and can handle higher monthly payments. Interest rates typically range from 5% to 36%. Shop around to snag the best rate.

RV Loans

If your tiny house is on wheels, an RV loan could do the trick. RV loans finance tiny homes built to RV standards and classified as recreational vehicles.

Benefits of RV loans include:

• No permanent foundation required

• Typically longer terms than personal loans

• Potential for lower rates than personal loans

Downsides to note:

• Your tiny home serves as collateral

• Lenders may require full-time residency

• You probably need a down payment

RV loans let you buy a “movable” tiny home. Just confirm yours meets RV standards first.

Land Loans

Don’t forget – your tiny still needs land! You’ll probably need a land loan unless you already own property.

Land loans help cover costs to purchase and prepare property for your tiny house. Look into:

• Raw land loans: For vacant property

• Construction loans: Cover land plus site development

• USDA land loans: For rural areas with flexible requirements

Shop around to find the best land loan lender and terms for your needs.

Contractor Financing

Some tiny home contractors offer financing through partnerships with lenders. This financing may come as:

• An RV loan

• A personal loan

• A land loan

• Other loan products

Always verify loan details if you go this route. Make sure you’re getting the best interest rates and terms.

Paying Cash

The most cost-effective option is paying cash upfront for your tiny home and land. While not feasible for everyone, it helps avoid interest and monthly payments.

If you can save up to pay in cash, you’ll save money long-term. But financing can work if you need it.

Other Less Ideal Options

Financing a tiny home with credit cards or other high-interest loan products is possible but not recommended. You’ll end up paying much more over time.

6 Tips for Getting Tiny Home Loans

If you’ve weighed your options and decided financing is the way to go, here are some tips to get the best tiny home loan:

1. Have good credit. Lenders offer better rates and terms to borrowers with scores of 720+ or higher.

2. Shop around. Compare multiple lenders to find the lowest rates and best loan products.

3. Get pre-qualified. This shows sellers you’re serious and gets the ball rolling.

4. Put extra money toward principal. Making extra principal payments helps pay off loans faster.

5. Choose longer terms. Longer loans have lower monthly payments, but you pay more interest.

6. Make on-time payments. Payment history also boosts your credit standing over time.

With the right financing strategy, you can absolutely achieve your tiny house goals. Define your priorities, run the numbers, and find a lender who can make it happen. The tiny life awaits!