Tiny houses have exploded in popularity in recent years as more people adopt minimalist lifestyles and seek affordable, sustainable housing options. But figuring out how to finance building or buying a tiny home can be a big challenge. Traditional mortgages don’t work for tiny houses, so you need to get creative with your options.
In this blog post, we’ll break down the costs of a tiny house, and go over financing options like personal savings, loans, builder financing, and more. We’ll also discuss key considerations like credit score, interest rates, and legal zoning issues. Our goal is to empower you to make your tiny house dreams a reality!
Understanding Tiny House Financing
Before we dive into financing specifics, let’s look at why tiny houses are so appealing yet pose funding challenges.
The Appeal of Tiny Houses
- Freedom and mobility – Tiny houses allow you to live mortgage-free and travel more.
- Environmentally friendly – Their small size requires fewer resources to build and operate.
- Cost savings – Significant savings on utilities, taxes, maintenance compared to traditional homes.
The Cost Factor
On average, a custom tiny house will cost $25,000 to $55,000. Key costs include:
- Building materials.
- Appliances.
- Utilities hookups.
- Labor.
- Furnishings.
- Permits/insurance.
While tiny homes are cheaper than typical houses, coming up with $25k-$55k in cash is tough. And traditional financing options don’t fit tiny houses well. So let’s look at some creative ways to fund your tiny house dreams!
Traditional Financing Options
It’s difficult to get a traditional mortgage for a tiny home since most banks view it more like an RV than a house. However, some credit unions and smaller banks may offer mortgages or construction loans for tiny homes.
Another route is a personal loan from a bank or online lender. Personal loan amounts can reach $50k+ with decent rates for those with good credit (15%+). While not ideal, personal loans are a reasonable tiny home financing option.
Personal Savings and Budgeting
Saving up to pay cash for a tiny house takes discipline, but it’s 100% doable. Here are some tips:
- Set a reasonable timeline such as 1-2 years to save.
- Build a detailed tiny house budget and track spending diligently.
- Make temporary lifestyle sacrifices like downsizing your current home.
- Take on extra work like freelancing, ridesharing, or part-time jobs.
- Take advantage of retirement plan loans if available.
With diligent budgeting and saving, you can make impressive progress toward full cash payment over time.
Specialized Tiny House Financing
Along with general consumer loans, there are also specialized financing options tailored for tiny homes. Let’s explore them.
RV Loans
Some tiny houses are built on trailers, making them similar to RVs. This opens the door to RV loans which commonly finance vehicles up to $50,000. Terms are usually 5-20 years with competitive interest rates. The mobility is a nice perk too!
Tiny House Builder & Dealer Financing
Many tiny home builders and dealers offer financing programs including:
- Installment loans – Fixed regular payments over 1-5 years.
- Rent-to-own – Portion of payments go towards purchase.
- Owner financing – Directly finance through the builder/dealer.
Builder financing simplifies the process since they’re familiar with tiny homes. Just ensure terms/rates are reasonable.
Peer-to-Peer Lending
With peer-to-peer lending sites like LendingClub, you can get personal loans funded by individual investors. The minimum credit score is often just 600, and amounts up to $40,000 are possible. Interest rates may be 10-29%. It’s nice having the investor flexibility!
Grants and Community Programs
Some non-profits and local housing organizations offer tiny home grants or affordable financing help. Search online for “tiny house grants” or “affordable housing programs” for potential options in your area. Tax benefits may also be available.
Key Factors to Consider
Let’s shift gears and talk about key considerations for securing the best tiny house financing.
Credit Score and Financial Health
As with any loan, your credit score greatly impacts your financing options. Scores below 650 will hamper you significantly. Aim for 700+ by paying bills on time and reducing debt. Also have steady income, low debt-to-income ratio, and clean credit history.
Loan Terms and Interest Rates
Carefully evaluate loan terms like length (duration), required down payment, and interest rates:
- Fixed rates stay the same over the loan period. More predictable!
- Variable rates can fluctuate over time. More risk!
- Watch for hidden fees like origination charges too.
Legal and Zoning Considerations
Local zoning laws may prohibit placing a tiny house on your land or hooking up to utilities. Research regulations thoroughly and consult your town office. It’s critical for avoiding headaches down the road!
Final Thought
We covered a ton of ground on financing your tiny house dreams. To recap, evaluate personal savings, traditional and specialized loans, builder financing, peer lending, grants, credit score/debt, loan terms, legal issues, and more as you create your game plan.
