Sure, tiny houses look amazing and are also way more eco-friendly than a conventional house. But you’re also probably interested in building or buying a tiny home because it’s cheaper than a traditional house.
When designing your tiny home, you can make smart choices when it comes to things like water heaters, roofing, and insulation, to keep costs as low as possible and minimize how much you need to borrow.
Nevertheless, while tiny houses cost way less than a conventional house, they still don’t come cheap. In fact, they can cost anywhere between $10,000 to $100,000 to build, depending on design—and then there’s the cost of other essentials, such as furniture and appliances.
Buying a pre-built tiny house can be equally pricey: on average, $70,000. And that doesn’t include the cost of land or delivery.
And so, unless you happen to have that money sitting around in your savings account, you’re going to have to borrow from somewhere—whether that’s friends or family, a tiny house company, or a bank. Here are our top tips on financing your tiny house.
Informal borrowing from friends and family
Depending on your circumstances, you could borrow money from friends or family. Knocking on the doors of your nearest and dearest asking for money isn’t as bad as it sounds. You just need to come up with an agreement that both parties can commit to.
You can either agree to pay back the amount you borrowed, or offer to pay interest, perhaps at a rate of 8-10%. This way the other person can consider it more an investment than a loan.
You could also consider crowdfunding your tiny home. Set up a campaign and use your social network to encourage people to give donations.
Tiny house schemes
Some tiny house companies have schemes to help you finance your new tiny home.
These tiny house builders that finance include Mustard Seed Tiny Homes. The company offers loans to those who buy one of their homes, with monthly payments of around $500 or $600 and a 23-year term. However, you’ll have to be able to give a 5-10% down payment.
Banks and credit unions
Traditional home mortgage
If your tiny house complies with building codes and size requirements, you can approach the bank and apply for a mortgage.
However, your tiny home may have to be on permanent foundations to qualify. Plus, often the value of the tiny house isn’t high enough for banks to want to lend. Most lenders require a minimum loan amount of at least $50,000.
This may explain why two-thirds of tiny house buyers don’t finance their new homes with a tiny house mortgage.
There’s also the option of chattel mortgages. These are essentially loans on a movable bit of property. You borrow money from a lender who technically owns your tiny home until you’ve paid the loan back. These mortgages often come with shorter and more flexible repayment terms than home mortgages, but also slightly higher interest rates.
An alternative is an unsecured personal loan—the most flexible option on our list. You can use a personal loan to finance anything and borrow as much or as little as you like.
However, the interest on personal loans tends to be much higher and the repayment terms are also likely to be shorter—around seven years. You’ll also need a good credit score (720 or above) and a regular income to qualify.
Credit unions also offer personal loans but you’ll need to meet the requirements to join. You’ll also have to pay a small fee before applying.
Home equity loan or line of credit
If you already own your own home, you could take out a home equity loan or line of credit against this existing property. These are secured against the value of your home equity.
The difference between the loan and the line of credit is that the former is usually a set amount of cash with a fixed interest rate while the latter is more like a credit card—you choose how much you access as you go along.
If your tiny home is going to be built on the same land as your existing property and qualifies as an accessory dwelling, a home equity loan offers low-interest rates and long repayment terms.
However, you’ll need to have already built up enough equity on your current home. And, if you fail to make payments, your primary home will be used as collateral. Therefore, this method can be a risky way to finance your tiny home.
Home equity lines of credit offer greater flexibility, low-interest rates, and you only need to borrow what you need. But interest rates can go up and down and borrowing against your home equity means you could spend more time paying off your house.
Peer-to-peer lending platforms
These platforms are essentially online marketplaces where people can lend money to other people and charge interest. The platform will simply match you to people who are willing to lend you money—a good way to bypass the bank.
Interest rates are usually lower than traditional loans and some platforms have no minimum loan amount. However, you will need a good credit rating.
The advantage of platforms like this is that it’s not really about the money. Investors believe in the value of the tiny house movement and really want to help you out.
RV and Travel Trailer Loans
If your tiny house qualifies as an RV, and you only plan to live in it part-time, then you can apply to companies offering RV loans, such as Rock Solid Funding, based in Texas. The terms can be between 1 and 15 years, and interest rates can be as low as 6% and as high as 19%.
However, there are certain criteria you’ll need to meet, and you’ll have to be certified by the Recreational Vehicle Association. Your home will also have to be made by a manufacturer rather than being a DIY build.
Plus, your tiny home can’t be your primary dwelling.
The final say
As things currently stand, financing your tiny home can be tricky. However, it’s certain that as the movement grows in popularity, lenders will recognize the market potential and we’ll start to see more financial providers offering tiny house financing packages.