How To Finance a Tiny House
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.
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 tiny houses
Building or buying a tiny house can be a blast. They’re highly customizable, and you can make them out of nearly anything. As long as you’re meeting code and zoning laws, there is no industry standard. Some popular styles include:
- Traditional tiny home: Traditional tiny homes come in a variety of styles. A-frames, yurts, cottages, cabins — the possibilities are endless. People usually build these on a permanent foundation.
- Tiny house on wheels: A tiny house on wheels is built on a trailer that can be hitched to a truck. These are considered RVs. Keep in mind that you’ll need to find an electrical hookup and an appropriate place to park.
- Park model: Although a park model is technically an RV, it’s more like a manufactured home (but with wheels). You can move them, but they aren’t as mobile as a tiny house on wheels. Most keep their park model in place in an RV or mobile home park. Park models must be under 400 square feet (500 in Florida).
- Container home: Living in a shipping container doesn’t sound glamorous, but you might be surprised. Container homes can get elaborate, with multiple floors and upper and lower decks. Like traditional tiny homes, container homes are stationary.
How much does a tiny house cost?
Like normal houses, costs for a tiny house vary wildly.
On average, a tiny home costs around $300 per square foot for prefabricated, and $250 to $450 for custom built. In contrast, traditional homes cost around $150 per square foot.
The cheapest option is to go the DIY route. Home Depot sells tiny home build kits starting at around $20,000. Custom-built or luxury models can easily exceed $100,000.
But the tiny house itself isn’t the only expense. You also need to consider:
- Permits: $500 to $2,500+
- Inspections: Up to $250
- Electrical hookups: $3,000 to $12,500
- Plumbing: $500 to $3,000 (labor only)
- HVAC: $1,500 to $4,000
- Delivery fees: $1.00 to $3.50 per mile
- Foundation: $5,000 to $8,000
- Land: Depends on location, but the U.S. average for one acre is around $16,000
- Furnishings: Varies, and may need to be made specifically for tiny living
- Insurance: Varies
The costs above are estimates. How much you’ll pay depends on where you live, what kind of tiny house you’re building and other factors. Before you go all-in, get quotes from several contractors.
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 |
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).
Personal loan
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
- 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
Cons
- 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 loan
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
- 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
Cons
- Might need to make a 10% to 20% down payment
- Not all tiny homes qualify
- Probably won’t cover expenses like furnishings
Home equity loan
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
- Generally cheaper than personal loans
- No down payment
- You can use it for related expenses like land and furnishings
Cons
- 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)
Home equity line of credit
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.
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
- Can be cheaper than personal loans
- 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 expensive when the economy is volatile
- Closing costs usually apply
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 participate in lender partnerships. Here, the builder will link you with a partner lender instead of providing the money itself.
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
- May still qualify with less-than-perfect credit
- Can offer a streamlined one-stop shopping experience
Cons
- Not as common or standardized
- May require a down payment
- Customer service may be less accessible
What to know before financing a tiny home
1. You can’t build (or park) a tiny home just anywhere. Even if you own land, you might not be able to build a tiny home on it. Check your local zoning laws for restrictions.
2. You might need a truck. If you’re buying a tiny house on wheels, you’ll need a way to move it. In that case, you might want to research how to buy a car.
3. A tiny house may not be a good investment. A tiny house on wheels is technically an RV, and RVs usually depreciate in value (sometimes quickly). Be careful how much you borrow. You don’t want to end up underwater (or owe more on your loan than your tiny home is worth).
4. 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
It can be hard to find a viable loan option for a tiny home, but it’s possible if you think outside the box. You probably won’t qualify for a traditional mortgage. Instead, you may need to get a personal loan, an RV loan, a home equity loan or financing from your contractor.
That depends. You could finance a tiny house with a bad credit personal loan. Upstart, for instance, only requires a minimum credit score of 300. However, it also only offers loans of up to $50,000 (and you might not qualify for its maximum loan amount if you have bad credit).
Home equity loans typically require at least good credit, and RV loans generally require fair. Requirements for builder financing are up to your builder.
Loan terms vary based on the type of loan you’re using to finance your tiny house.
Some personal loan lenders (like LightStream) have extra long loan terms — 144 months, or 12 years. RV loans tend to max out at 10 to 20 years. At 30 years, home equity loans and HELOCs generally have the longest repayment terms.
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