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 as an affordable and sustainable housing option But financing a tiny home can be tricky since they often don’t qualify for traditional mortgages If you’re wondering how to get a loan for a tiny house, this guide covers your financing options in detail.
What is Considered a Tiny House?
Before diving into tiny home loans, let’s clarify what constitutes a tiny house While definitions vary, tiny houses are generally defined as dwellings under 400 square feet in size. For comparison, the average American home is around 2,300 square feet.
Tiny homes come in all shapes and styles, including:
- Tiny houses on wheels (built on a trailer)
- Stationary tiny houses (built on a foundation)
- Container homes (made from shipping containers)
- Cabins, cottages, and a-frames
The low square footage is what typically makes traditional mortgage financing difficult for tiny houses. But alternative lending options are available.
Average Cost of a Tiny House
Tiny houses range in price depending on features and customization Here are some typical price points
- DIY build from a kit – $10,000 to $40,000
- Custom build tiny house – $40,000 to $100,000+
- High-end/luxury tiny home – $100,000+
Factor in land costs, utility hookups, and furnishings, and the total budget for a tiny living setup can range from $25,000 to well over $150,000.
Tiny House Loans and Financing Options
While rare, it is sometimes possible to get a traditional mortgage on a tiny home, especially if it meets requirements like being on a foundation and over 400 square feet. But in most cases, you’ll need an alternative financing option. Here are some of the most common types of loans for funding a tiny house:
Personal Loans
- Up to $100,000
- 1 to 7 year terms
- Rates from 5% to 36%
- Qualify with fair credit (640+)
RV Loans
- For tiny homes on wheels
- 10- to 20-year terms
- Competitive interest rates
- Require good credit
Home Equity Loans
- Use equity in current home
- $15,000 to $500,000+
- Low rates with good credit
- Risks: Foreclosure if default
Contractor Financing
- Offered directly through builder
- Terms vary by lender
- Limited availability
Cash or Credit Card
- Pay tiny home cost upfront
- High interest with credit cards
When researching lenders, compare interest rates, fees, loan terms, credit requirements, and other qualifying criteria. A personal loan is one of the most versatile options for borrowers with a range of credit profiles.
Tips for Getting Approved for a Tiny House Loan
Getting approved for financing starts with maintaining a strong credit score. Lenders generally look for scores of 640 and above. You can check your credit reports for free to find and correct errors before applying.
Next, make sure your debt-to-income ratio (DTI) is low. DTI compares your monthly debts with your gross monthly income. Most lenders require a DTI of 50% or less to qualify for a personal loan or other financing.
Having a down payment of 10-20% of the tiny home’s price often results in better loan terms as well.
Finally, document stable income. Provide recent paystubs, tax returns, and bank statements showing you can comfortably afford the loan payment. The stronger your financial profile, the better your chances of tiny home loan approval.
What to Know Before Getting a Tiny House Loan
While getting financing for a tiny home is possible, be aware of a few key considerations:
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Higher interest rates – Alternative loans often have higher interest than traditional mortgages. Shop rates from multiple lenders.
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Shorter terms – Tiny home loans may need to be repaid faster, resulting in higher monthly payments.
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Lower resale value – Tiny houses depreciate over time like RVs. It’s hard to build much equity.
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Property restrictions – Local zoning laws may prohibit tiny houses on certain land plots or require permanent foundations.
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Moving challenges – Towing and transporting a tiny house on wheels requires a truck and can be costly.
Even with these drawbacks, tiny home loans allow buyers to finance a unique dwelling that fits their lifestyle and budget. Just be sure to fully understand the terms and commitment before borrowing.
Finding the Best Tiny House Loan for You
Every borrower’s needs and financial situation is different. With some research and shopping around, you can likely find a lender willing to finance your tiny house dream.
Online lenders like LightStream and Upstart offer streamlined personal loan applications with fast decisions. Banks and credit unions are worth checking as well. And don’t forget to ask your builder – they may partner with a lender able to assist.
While unconventional, financing a tiny house is very doable. Determine your budget, credit standing, and ideal loan terms. Then seek out the most competitive tiny house loan for your needs. With an affordable monthly payment that fits your budget, you’ll be enjoying tiny living in no time.
What is a tiny house?
A tiny house is exactly what it sounds like: a miniaturized version of a house. Tiny homes range from 100 to 400 square feet. In comparison, the average home size in the U.S. is around 2,000 to 2,300 square feet.
The best place to buy a tiny home depends on your preferences (and budget).
If you’re handy enough, you can buy a kit and construct a tiny house yourself. There are also tiny home contractors that can build your house to order. You might even save a buck by getting a used tiny house from a private seller.
Most tiny homes come with electricity, water and the other major amenities you’d expect in a normal-sized house. Also, going tiny doesn’t mean you’re exempt from building codes.
Building codes vary from state to state (and in some cases, jurisdiction to jurisdiction). For example, your ceiling must have a height of at least six feet, eight inches for your tiny home to meet code in Florida. California, on the other hand, requires that most ceilings be at least seven feet, six inches high.
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) |