Since the summer of 2014, the topic of tiny houses has rapidly gained popularity, especially in the U.S. From tv shows to tiny house communities, the tiny house movement is making a big commotion in the housing industry. But behind every tiny homeowner’s dreams of living a simple life, flexibility, and helping the environment comes a more serious question: How do you finance a tiny house?
Since tiny houses are significantly cheaper than traditional homes on the market, it’s safe to say you can probably come up with financing on your own. If you already have a primary residence and you’re not in a hurry to move, it might be best to make your current living situation work as long as possible and save up during that time. Then, when it comes time to finance your tiny house, you can pay solely from your savings. While this method takes longer than other options, the benefit is moving into your tiny house debt-free! That’s something traditional homeowners can’t tout.
Another way to do it yourself is to put your tiny house on multiple credit cards. Although a form of financing, this route is more independent of a third party than other financing options. Credit card financing works whether you buy a manufactured tiny house or build it yourself. Either way, when you’re using credit cards, you determine the payback schedule. Make consistent payments as you would with any other purchase and you won’t have to lock into a loan. This method is best for future tiny homeowners who are responsible with their credit cards and want to finance independently but just don’t have the cash right now. However, if you’re considering this route, you should seriously look into your credit cards’ interest rates and make sure you set up a strict plan to pay it back. If not, this tiny house financing method could be a slippery slope to debt!
If you’re someone who has generous friends and family who support your tiny house dreams, it might be worth it to ask them for financial support! Benefits may include: You don’t have to involve a financial institution. You get to determine the payback schedule with someone you know well and trust. You might even be able to borrow without interest. Basically, the two of you can make your own rules, so long as the agreement is fair and doesn’t leave either one of you in financial straits.
Here’s a common problem with tiny house financing: Most tiny houses do not qualify for traditional mortgages. This poses quite a problem when tiny homeowners go to their bank, credit union, or mortgage lender looking for a way to finance their little home. The only way to get a mortgage for a tiny house is if it’s built on a foundation—it can’t be mobile. If it’s mobile, it’s not considered real property, therefore, it doesn’t qualify for a traditional mortgage. On top of that, mortgage lenders have a minimum loan amount that is generally higher than even the most expensive tiny house. However, if your tiny house is built on a foundation and you own the property, you may be eligible for a traditional mortgage. It never hurts to make the phone call and see if your tiny dream qualifies.
Secured Loan: Secured loans are tethered to property. This means you can borrow money from a secured source, such as equity in your primary residence, another property, or even a paid-off car. With a secured loan, you can borrow money against your assets and use that money to finance your tiny house.
Unsecured Loan: Unlike secured loans, unsecured loans are not attached to a piece of property. You can borrow an unsecured loan from your bank once they determine that you have qualifying credit.
Manufacturer Loan: This type of loan is quite common in the tiny house industry. Many tiny house manufacturing companies have their own financing set up and will offer this type of loan to their tiny house customers.
Construction Loan: If you’re a real go-getter and you want to build your own tiny house, a construction loan will help you borrow as you build. These loans typically require interest-only payments during construction with the full balance due upon the house’s completion.
Installment Loan: This broad term can be defined as a loan in which you borrow a specific amount from a lender and agree to pay it back, plus interest, in a series of monthly payments. These can be originated from your bank and are considered a generally safe and affordable alternative for tiny home financing.
RV Loan: If you’re like the majority of tiny homeowners, you joined the literal bandwagon because you wanted a mobile lifestyle, fulfilling your desires for freedom, flexibility, and more travel. However, as aforementioned, mobile tiny homes do not qualify for traditional mortgages because they’re, well, mobile. The good news: tiny house manufacturers are now classifying their products as “trailers,” making them available for RV loans. The downside: RV loans are not for primary residences, so you’ll need somewhere else to call home in order to qualify. In addition, the interest rates on RV loans tend to be higher than those of traditional home mortgages.
One of the coolest things about the tiny house movement is that it really feels like a community. This vibe comes to life through peer-to-peer lending sites like Tiny House Loans and Tiny House Lending where wannabe tiny homeowners can access funding and get connected to third-party lenders. Normally, these lenders are investors who genuinely desire to help tiny homeowners achieve their tiny living dreams and are supportive of the big-picture tiny house movement. How cool is that?!
Truth be told, there really is no “best” way to finance your tiny house. Just like the reasons why people choose tiny living are different, their financing methods will be different too. As with any big financial decision, it might be wise to contact your financial advisor to discuss which option is best suited for your personal needs and financial situation. We hope this article helps you decide which tiny house financing option works best for you.