Tiny homes are awesome but there’s just one problem standing in most people’s way of getting one. How to finance your tiny house?
Banks don’t tend to offer mortgages on tiny homes and this can make it really challenging to finance a dream tiny home, but don’t despair, it is possible to buy the tiny house of your dreams. What you need is tiny house financing.
How To Pay For Your Dream Tiny Home
OK, you’ve got our guide to tiny houses and tiny homes and you’re ready to get your home built, there are 8 options for you to pay for it and they are:
Raid Your Savings
Yes, we know most people won’t have savings to cover the costs of a home but if you’re the exception – raid them. A tiny home bought without personal loans, an interest rate, or even a down payment but which is bought outright? Is an immediate asset in your life.
This means you will own your home outright and you won’t need to pay interest on a debt, you can’t ask for more peace of mind when it comes to homeownership than that. There's no need to finance a tiny house when you can just buy one.
You can always replenish your savings with the money you won’t be spending on loan repayments or a mortgage. And as long as your tiny home is your primary residence, you can't end up homeless.
Get A Loan From Your Family or Friends
Again, this won’t be an option for everyone but many parents (or occasionally close friends) are happy to loan people the deposit on their first home. This form of tiny house financing is usually cheaper and kinder than a personal loan from a bank.
Well, a deposit of around $35,000 is enough to buy a tiny home outright.
And if you agree to a fair amount of interest (say 5%) and pay it back over 5 years, you’re still going to spend less than you would on rent and your family member or friend is going to see a better return than they would in a bank.
It's a truly “personal” loan and as long as you pay back personal loans of this nature, it's one of the best ways to own tiny houses that we can think of.
Consider A Personal Bank Loan
While this is likely to be more expensive than the bank of mom and dad, a personal loan from the bank offers lower interest rates than credit cards.
Personal loans from lending services are usually unsecured too – which means you can't lose your house if you miss a monthly payment.
However, you may find that they’re willing to reduce the interest rate substantially if you can offer security (e.g. your tiny home and maybe your car) and while you may pay slightly more than you would in rent for repayments, in 5 years, you’ll own your home outright.
Personal loans are a solid way to get a mortgage loan without being a “tiny home mortgage” and keeping your monthly payment reasonable.
Check The Builder’s Financing Options
Some of our favorite tiny home companies, such as Tumbleweed, offer their own “in house” (excuse the pun) financing options.
If they do offer financing, this is usually done through a third party and you want to check the t’s and c’s carefully as some offers are likely to be a bit on the “punitive” side of financing.
Remember, you’re supposed to save money by living in a tiny home, a really high APR is not going to help you do that.
To qualify for an RV loan, a tiny home must be on wheels or mounted on a trailer and thus, it can’t be your permanent residence (at least, until you’ve paid back the RV loan(.
You will also need a decent credit rating and a permanent residence and in most cases, they will want to know the make and model of the RV which may make it hard to get an RV loan in some instances.
However, they do tend to offer a reasonable APR and some tiny home builders (like Tumbleweed, mentioned above) do make homes that are compliant for RV-loan funding.
Explore Peer-to-Peer Credit Options
Peer-to-peer lending is a new form of finance that involves everyday people lending money on more unusual risks and they do so by pooling the money they lend, to reduce their risk.
The downside to peer-to-peer loans is that they tend to be more expensive than any of the options above but they do tend to be more receptive to lending on tiny homes than many banks are too.
Get A Home Equity Loan
If you already have your own home and it’s got equity on it, you might be able to remortgage it to free up some of that equity.
This is often a very good deal because mortgage interest is usually lower than any form of lending (except, possibly, the bank of mom and dad).
But be warned, this often means extending the period of your mortgage and not just increasing the payments on it.
Consider A Chattel Mortgage
A chattel mortgage is a specific financial loan instrument for property which can be moved, you will need to work with a specialist broker to get a loan like this.
Like a regular mortgage, the loan is secured against your property, so if you don’t keep up with payments, the lender can reclaim your tiny home.
However, interest rates tend to be competitive because the lender has some security for the loan.
What To Do If You Can’t Get The Financing You Need?
If you can’t get financing, there are still a couple of options that you can explore in pursuit of your dream tiny home.
Build Your Own And Cut Costs
Building your own tiny home can save a fortune, grab a plan from these tiny home plans and see how much you can save on building it.
Look For Something Cheaper
And if that doesn’t work?
You can still explore your options for an even cheaper tiny home, these tiny home blogs may be able to help point the way for you.
Final Thoughts On How To Finance Your Tiny House Dream
You may not be able to get a mortgage on a tiny home but you can certainly finance your tiny house dream and now you have eight options to explore.
Good luck with it, living in a tiny home is superbly freeing once you’ve made the move.