How to Finance a Tiny House
If you’re tired of having a regular-sized home and all the chores that come with it, there’s one way to reduce your responsibilities without moving in with someone else or renting an apartment. The tiny house movement, as it has become known, offers a way to live independently without all the stuff — or the space — you’re probably accustomed to.
There are plenty of upsides and downsides to the movement, which we’ll cover in a moment, but there’s a reason so many people are trading in large homes for “tiny living” and the tiny living lifestyle. In this guide, we’ll cover the ins and outs of tiny homes, the tiny home lifestyle, and getting financing.
Table of contents:
- What are tiny homes?
- Does tiny living fit your lifestyle?
- Different types of tiny homes
- The costs of tiny home construction and ownership
- RV loans and personal loans
- Other sources of financing
What are tiny homes?
The cornerstone of “tiny living” is, of course, having a tiny home that is much smaller than the average dwelling. While the average size of a tiny home can vary, tiny homes are generally somewhere between 100 and 400 square feet, according to TheTinyLife.com. Tiny homes come in all shapes and designs, but most have small versions of a kitchen and bathroom along with a cozy sleeping area and a small living space.
Some larger tiny homes may have a raised loft sleeping area or more than one bedroom, although they could be inching into “small home” space at a certain point.
Another way tiny homes are different from traditional homes is the fact that some are mobile (on wheels) while others aren’t on permanent foundations. Tiny homes are also more likely to use a different range of materials than traditionally built homes, especially because some tiny homes are built out of trailers or converted storage carts.
Does tiny living fit your lifestyle?
Will tiny living actually fit into your lifestyle? According to those who have been there, it can as long as you’re flexible and open to making some sacrifices.
To learn more about what those sacrifices are, let us introduce you to two people who have chosen tiny living in two different parts of the country – California and Pennsylvania.
Claudia Pennington and her spouse live in a larger tiny home (around 500 square feet) near Lancaster, Pennsylvania. Her home is permanently fixed to a foundation, she says, which makes it a lot like a regular, albeit small, traditional home.
Pennington says tiny living works well for her husband because they don’t have kids and love to be outdoors. They bought their tiny home while getting out of debt, deciding they wanted less responsibility and selling their larger traditional home. There are definite downsides to the change, she says, but she believes the benefits far outweigh any negatives of no longer living in a large home.
Amber Berry has also chosen tiny living. The difference for her is the fact that she rents a tiny home instead of owning one of her own.
Berry lives on her own in a one-bedroom, one-bathroom tiny home that’s less than 350 square feet. Her home has a big porch, a small yard, and a small shed for storage, she says, which really helps. She also has a full kitchen and bathroom along with an adjoining living and dining area. Berry says she moved there before she graduated college so she could get a place of her own (without a roommate). She chose to rent tiny because she lives in Sacramento, Calif., where rent for regular apartments are expensive.
Her tiny house only sets her back $850 per month including utilities, she says. Berry says she has lived in her home for three years and she loves it so much that she has no plans to move soon.
Tiny living pros
- More free time: Both Pennington and Berry say they save a lot of time by not having to do much cleaning or upkeep on their tiny homes. For Pennington specifically, the lack of chores leaves more time to do the things she loves. “We have more free time to do hobbies we enjoy,” she says. “Tiny living forces us to get outdoors and do something active like hiking.”
- More privacy than an apartment: Berry says she doesn’t miss her days of apartment living and prefers the privacy of her tiny home. “My home is not attached to anything so I don’t have to deal with the struggles of sharing walls with loud neighbors,” she says.
- Less pressure to conform: Pennington says she no longer experiences pressure to accumulate stuff or keep up with the Joneses because she doesn’t have room for new stuff anyway.
- Financial benefits: Even though Berry rents her tiny home, she says it’s been a huge boon for her finances, because regular apartments and condos are going for “twice as much or more” in her area. Pennington says buying a tiny home has been amazing for their finances. They’re able to save a lot more money because they don’t have a large house payment, she says. Not only is the loan on their tiny home equally “tiny,” but the home itself only needed a small lot. The land they built on only cost $3,500, which they paid in cash.
Tiny living cons
- Lack of “creature comforts”: Berry says that, since her home doesn’t have a washer or dryer (or space for one), she has to go to the laundromat once per week. And since she only has a dorm-style refrigerator, she can’t always keep the type of foods she wants.
- Lack of privacy within the home: “Due to our limited space, there’s no real privacy in the house,” says Pennington. It can also be loud. Pennington complains that it’s hard to escape from outside noises like cars passing by. “Noise travels really far.”
- Funny smells: Pennington says that anything she cooks in the home lingers for days, if not weeks. “Smell is an issue, so we have to run an air purifier,” she says.
- No room for guests: Pennington says they spend a lot of time traveling to see family because they don’t have room to host guests. They also tend to go out if people visit instead of staying in, which can be inconvenient. “We have limited seating, so we tend to go out if we have people visiting,” she says. “We can be outside if it’s nice out, but winter can be tricky.”
Different types of tiny homes
Because tiny homes are often custom built with a dizzying array of materials, there is no such thing as a “standard” tiny home. Pennington says her tiny property is a manufactured home on its own tiny foundation, while Berry says hers is a park model home that could potentially be mobile (it’s on wheels, but it has never moved). Some people build tiny homes out of unused semi-trailers, while others build them out of lumber and plywood directly on a foundation or on a tiny house trailer.
With that in mind, here are the most common types of tiny homes, based on our research:
- Tiny traditional homes: Traditional tiny homes are built on a foundation, like any other home. Building materials vary but can include lumber, concrete, plywood and more.
- Tiny house on a trailer: Tiny houses are often built on trailers so they can be moved if the buyer wants a change of scenery. In this case, they are usually built on tiny home trailers out of traditional building materials.
- Converted storage shed: Storage sheds can make good tiny homes because they typically come pre-built and can be customized inside. Insulation and drywall are often added for more home-like feel.
- Container home: People frequently build tiny homes out of storage containers or semi-truck containers. With the container as an outer shell, they can customize the inside and add insulation and walls for a cozy feel.
The costs of tiny home construction and ownership
The costs of tiny home ownership can vary dramatically depending on the materials you choose and how much of the work you do yourself. According to Tiny Home Builders, there are three main ways people go about building a tiny home, and they all come with their own average costs.
If you choose the DIY approach, for example, you should expect to pay $15,000-$20,000 in materials for a 20-foot long tiny home. However, keep in mind that your time is not free. If you do all the grunt work and building yourself, you’re spending time you could be using to make money.
However, you may not need to spend quite so much. A couple we spoke to from Southern Indiana paid $30,000 for 15 acres to build their tiny home. Since they built with mostly salvaged materials and did all the construction themselves, they only spent around $7,500 for their home, which is around 384 square feet.
The couple says the biggest costs came from the metal roofing they selected, the treated lumber they needed for construction, and the solar grid they set up to power the house. They saved a lot of money by reusing old appliances and finishing the interior of the home with abandoned construction materials like wooden paneling and an old stove they found on their property.
Obviously, not everyone wants to build their own tiny home — at least not from the ground up. If you want some of the work done for you, you can also hire someone to build the shell of your tiny home then focus your efforts on the inside. Tiny Home Builders estimate that you’ll spend between $15,000 and $23,000 on a shell alone. However, they warn to be aware of costs as you shop, because exterior materials like windows are some of the most expensive items you’ll need.
Last but not least, you can hire a builder to take care of the entire project. Tiny Home Builders offers tiny homes that cost up to $61,000 with appliances included (plus a $5,000 upcharge of you want dormer windows). However, they say you should expect to pay in the neighborhood of $45,000 and up. With a few exceptions, they seem to be on the mark with that estimate since completed tiny homes for sale range from the low $40,000s to $100,000.
Pennington’s Pennsylvania tiny home falls in that range. She says that, all in with the house and the $3,500 lot they built on, they paid a total of $67,000 to have their tiny home built and utilities connected. The good news, she says, is that their regular housing bills (other than their mortgage) are really low. They pay very little to heat and cool their tiny home because it’s so small and efficient, says Pennington.
RV loans and personal loans
If you’re angling for a tiny home but don’t have the cash to pay for your home upfront, there are plenty of financing options available to you. Unfortunately, some options (like RV loans) come with strict rules that say your tiny home cannot be affixed to a traditional foundation.
If you want a tiny home on a foundation, a personal loan might be a better option. Here are some details on both RV loans and personal loans, and who they might work best for.
Tiny homes built on trailers may meet specifications that help them qualify for an RV loan. To qualify, your tiny home typically needs to be road-worthy as if it were a recreational vehicle, or RV. For that reason, this type of loan is best if you plan to buy a tiny home that is easily mobile. You can get RV loans from banks and online lenders that offer them.
- Rates: RV loan rates can vary depending on your creditworthiness and other factors. However, you may qualify for as low as 3.24 percent APR. Rates and monthly payments for these loans tend to be fixed.
- Terms: Typical RV loans are offered for up to 15 years, although 20-year loans are occasionally offered for more expensive projects.
- Common fees and other costs: You may need to pay an application fee, although not all RV loans charge them.
- Amount that can be borrowed: You may be able to borrow up to $100,000 or even more since some RV loans have no upper limit
- Loan requirements: Similar to an auto loan, RV loans require proof of income and a good credit score. While the minimum credit score varies from lender to lender, those with higher credit scores tend to get better loan terms and lower interest rates.
Personal loans are unsecured loans you can access for any reason, including the purchase of a tiny home. The benefit of using this type of loan to purchase your tiny home is the fact that you won’t have to get your home approved for the loan to go through. Since personal loans are “personal,” you can use the funds to buy anything you want.
- Rates: Personal loan interest rates can vary depending on your creditworthiness. However, rates are typically fixed and fall in the 5.99 to 24.99 range. You may compare personal loan offers right here on LendingTree.
- Terms: Personal loans are typically fixed, which means you’ll know how much interest you’ll pay and have a fixed monthly payment for the life of the loan.
- Common fees and other costs: Some personal loans charge an origination fee, which can range from 1 percent to 8 percent of the loan amount. However, many personal loan lenders don’t charge any fees.
- Amount that can be borrowed: Personal loans are typically offered in amounts up to $35,000, although you may be able to borrow more.
- Loan requirements: You need proof of your ability to repay the loan and very good credit (generally a FICO score over 740) to qualify for a personal loan with the best interest rate and terms. Lenders may also look at your debt-to-income ratio to see how much you can borrow. They typically like to see this ratio, which is determined by taking your total monthly recurring debt and dividing it by your monthly income, below 36 percent for a personal loan.
Other sources of financing
In addition to RV loans and personal loans, there are a few other ways to get your tiny home financed. If your home is traditionally built, you may be able to qualify for a traditional mortgage. Many tiny home manufacturers also offer their own financing programs or partner with a bank to offer financing to their customers.
LightStream, a Division of SunTrust Bank, is a lender who partners with certain tiny home builders such as 84 Lumber Tiny Homes Division and SunWest Tiny Homes. With LightStream, you can get a tiny home loan for up to $100,000 with a rate as low as 3.24 percent APR when you set up automatic payments. Otherwise, rates range from 3.24 percent to 10.97 percent. This type of financing can be advantageous if you like the loan terms and get a low APR and fees.
Other financing options for your tiny home include:
- Credit cards: While credit cards tend to have high interest rates that would make using cards to build a tiny home a costly affair, there are some situations where this situation could work. If you planned to borrow a small amount to build a tiny home and you could use a promotional 0 percent APR credit card and pay off your balance before your introductory offer is over, for example, a credit card could be your best bet. This, of course, is all contingent on having a credit limit high enough to cover your costs. Keep in mind that using a high percentage of your available revolving credit can significantly damage your credit score.
- Borrow the money: If you only need to borrow small sums of money, borrowing from family and friends is one way to build your house without relying on traditional banks.
- Pay as you go: Last but not least, you could always do what the couple from Indiana did and pay for your project as you build. Paying as you go works best for people who plan to do all the work themselves – and people who have somewhere else to live while they build.