How To Finance a Tiny House
Finding tiny home financing can be a challenge. You usually can’t use a traditional mortgage to pay for a tiny house. Instead, you might need to use a personal loan, RV loan or another type of tiny house loan.
If you’re dreaming big about going tiny, learn how to finance a tiny house to turn those dreams into reality.
- Unless your tiny home sits on a foundation, costs more than $100,000 and is at least 400 square feet, it probably won’t qualify for a mortgage.
- You can finance a tiny home with a personal loan, RV loan, home equity loan, HELOC or builder loan.
- Home equity loans and HELOCs use your current home as collateral. This risk may not be worth it for a tiny home.
Tiny house loans and other financing options
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 or $100,000.
Also, most mortgages require that the property is a certain square footage, and your tiny house might fall short. For instance, FHA loans require a manufactured home to be at least 400 square feet.
That doesn’t mean you’re all out of options for financing a tiny home. Below you’ll find several types of tiny house loans that could get you where you want to be.
Personal loan
Personal loan fast facts:
- Personal loan rates generally range from 5.99% to 35.99%+
- Loan amounts of $1,000 to $50,000+ are typical
- Loan terms usually run from 12 to 60 or 84 months
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. You can find a personal loan with online lenders, banks and credit unions.
Personal loans are typically unsecured (meaning they don’t require collateral). This can make them more expensive than other types of tiny home loans.
Although you can get a personal loan with bad credit, many lenders require a credit score or at least 670. Once you hit 720, personal loans through the LendingTree marketplace tend to be cheaper than credit cards.
According to our credit score monthly rate tracker, the current credit card interest rate is 24.36%, on average. In contrast, our most recent data shows that LendingTree users with 720+ scores got an average rate of 17.18% on their personal loans.
Pros
- Tiny home won’t need an appraisal (a requirement for mortgages)
- Easy application and same-day funding is possible
- No down payment
- Can use for anything, including furniture or whatever else you need for tiny living
Cons
- May be the easiest option, but it’s not the cheapest
- Lender may keep part of your loan as an origination fee
- Shorter repayment terms, which means you’ll have less time to pay back your loan
RV loan
RV loan fast facts:
- RV loan rates can start 5.99% if you have excellent credit
- RV loan amounts of $5,000 up to millions of dollars are typical
- RV loan terms usually cap out at 240 months (20 years)
If your tiny home isn’t attached to a foundation, you might be able to get an RV loan to finance your tiny house. Your tiny house must also be movable, either by its wheels or on a trailer
RV loans usually use the tiny home as collateral. This lowers the risk for the lender and in turn, reduces the rate for you.
Lenders tend to view RVs as a luxury item, and loan amounts are big. As a result some require higher credit scores. But like personal loans, it’s possible to get a bad credit RV loan. Just be sure that you can afford the higher rate.
Pros
- Compared to personal loans, RV loans typically have lower rates since the loan is secured
- Will have a longer time to pay off your loan, compared to a personal loan
- Not all RV lenders finance tiny homes
Cons
- Only a very specific type of tiny home can qualify for an RV loan
- Might require a 10% to 20% down payment
- Can only use to buy the tiny home (or RV) itself
Home equity loan
Home equity loan fast facts:
- Home equity loan rates could be as low as 6.49%
- Home equity loan amounts depend on how much equity you have in your home, but many max out at $500,000
- Home equity loan terms usually range from five to 30 years
When you get a home equity loan, you’re borrowing from the value of your home (how much your home is worth minus how much you owe). A home equity loan comes as a lump sum of cash and like a personal loan, you can use it for almost anything.
Home equity loans are secured, with your current home serving as collateral. Using your primary home as collateral to fund a tiny home is risky. If you can’t pay back your home equity loan (and your current mortgage, assuming you have one), you could lose your home to foreclosure.
Pros
- For most, home equity loans are cheaper than personal loans
- No down payment required
- You can use it for related expenses like land and furnishings
Cons
- Lender can foreclose on your home if you fall behind
- Generally need a 680 credit score, but some lenders may accept 620+
- Eats up equity in your home
- May pay closing costs (2% to 6% of loan amount)
Home equity line of credit
HELOC fast facts:
- HELOC rates could be as low as 6.87%, and most are variable
- Home equity loan amounts depend on how much equity you have in your home, but some offer up to $1 million
- HELOC repayment terms depend on how the HELOC is structured, but you may have up to 30 years to pay back what you borrowed
A home equity line of credit, or HELOC, is similar to a home equity loan, but with some big differences. You’ll still be borrowing from the equity in your home. But rather than getting a lump sum, you can borrow over and over again, up to a certain limit. In this way, a HELOC is sort of like a credit card.
Some HELOCs come with draw periods and repayment periods. During your draw period, you’re allowed to borrow. You’ll also make minimum payments.
During your repayment period, you can no longer borrow. Instead, you’ll use the time to pay off your balance.
Notably, HELOCs are the only types of tiny home loans on this list that usually have variable interest rates. That means rates go up and down, depending on market conditions.
Pros
- Uses collateral, so typically lower rates
- Provides a steady stream of funds rather than a lump sum
- Will only pay interest on what you borrow
Cons
- Can lose your home if you don’t pay your loan
- Reduces your home’s equity
- Variable rates can be unpredictable when the economy is volatile
Builder financing
Builder financing is a form of in-house financing. Your tiny home builder will fund your loan rather than a bank or financial institution. In some cases, builders may partner you with a specialized tiny home loan lender.
The best way to find out more information about builder financing is to speak with the builder itself. Builders don’t always advertise loan terms, amounts, rates and borrower requirements.
Pros
- Might have a low- or no-interest introductory period
- Could be easier to work with someone who specializes in tiny homes
- Can offer a streamlined one-stop shopping experience
Cons
- Not as common or standardized
- May require a down payment
What to know before financing a tiny house
- You can’t build or park a tiny home anywhere you want. Even if you own land, you might not be able to build a tiny home on it. Check your local zoning laws for restrictions.
- Make a plan for moving it. If you’re buying a tiny house on wheels, you’ll need a way to move it. That means you’ll need to hire professional movers, or you might need an auto loan if you don’t already own a truck. Be sure to include this extra expense, if it applies to you.
- A tiny house may not be a good investment. Tiny homes are generally seen as personal property rather than real estate. The home could quickly depreciate in value (but the value of the land it’s on may go up).
- Downsizing might be harder than you think. It’s easy to get swept up by the showstopping tiny homes you see on social media. Pictures don’t always tell the full story. Take a trial run and rent a tiny home for a couple of weeks to see what it’s like.
Frequently asked questions
A tiny house is a small home, usually 100 to 400 square feet, built on a foundation or wheels (the latter is considered an RV). On average, tiny homes cost between $30,000 and $60,000. Because tiny homes are smaller and don’t always qualify for traditional mortgages, most buyers use personal loans, RV loans, or other financing options.
You can finance your tiny house for up to 30 years, depending on the type of financing you’re eligible for and choose.
- Personal loans: usually 12 to 84 months (sometimes longer)
- RV loans: up to 240 months (20 years)
- Home equity loans: typically five to 30 years
- HELOCs: up to 30 years, depending on terms
- Builder financing: varies
Keep in mind that the longer your loan term is, the more interest you’ll pay over time. In trade, you will have a lower monthly payment. If you choose a shorter term, your monthly payments will go up but you’ll pay less total interest.
Some banks give mortgages for tiny homes, but it’s not easy to find a mortgage lender willing to finance a tiny home. Tiny homes don’t usually cost enough to meet lenders’ minimum amounts. Most lenders require the home to be a certain square footage, and it must be on a permanent foundation.
Instead of mortgage financing, many people buy tiny homes with personal loans, RV loans (depending on the type of tiny house), home equity loans, HELOCs and builder financing.
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