Financing a tiny house can be an adventure. Until very recently most lenders had never heard of a tiny house and this created a situation where getting any kind of money for your project meant super high interest rates or leaning on credit cards. Fortunately, some progress has been made and the tiny house community has found some support amongst some forward-thinking companies.
In this article we will cover some ways that you can finance your tiny house and provide a quick and easy calculator for your tiny house mortgage or loan.
One of the most obvious ways to fund your tiny house build is through a personal loan. This is not a mortgage, it is simply a loan that is taken out against your personal credit and income.
Upsides: Personal loans are easy to get if you have good credit and a decent income. They also have a straightforward approval process and they are available in any part of the US through your local bank.
Downsides: Personal loans typically come with mid-high interest rates, even if you have good credit. They may also be smaller than what you need to complete a tiny house build.
Typical APR: Huge range from 6% - 20% and beyond. All depends on your credit and income.
Upsides: Credit cards are easy to get with mid-good credit and can be used for all kinds of expenses. They are flexible and can come in handy to fill in the gaps from other sources of funding.
Downsides: To no one's surprise, credit cards are a trap that is easy to fall in and hard to get out. Their interest rates are extremely high in comparison to other types of debt and their ease of use can quickly lead to abuse. They also do not typically have high enough spending limits to cover the full cost of a tiny house anyway. Their terms are also unforgiving and late payments or renegotiation of debt can be terrible to your credit score.
Typical Interest Rate: 12% all the way up to 25% and beyond.
An FHA loan is a mortgage issued by an FHA-approved lender and insured by the Federal Housing Administration (FHA). Designed for low-to-moderate income borrowers, FHA loans require a lower minimum down payments and credit scores than many conventional loans. (Source: Investopedia)
Upsides: You can get an FHA Loan with a much lower down payment and credit score.
Downsides: You will most likely have to pay Private Mortgage Insurance (PMI) in addition to the loan repayment amount. This is money you will not get back; it protects the lender if you default on your loan, not you. The FHA program is slow moving on the tiny house on wheels front. You may find it challenging or impossible to get an FHA loan for a tiny house on wheels.
Typical APR: Based on prime lending rates, 3.625% to 4.75% is a good estimate.
Peer-to-Peer Lending allows individuals to come together and loan money to someone else. These loans are facilitate by a platform that acts as the trustworthy middle-man who vets the borrower and gathers the investors. LendingClub is a prime example of a P2P network. While P2P loans are similar to personal loans, the money is not coming from a bank., it is coming from individuals who have invested their own money into your loan.
Upsides: P2P loans are easy to get online and with clear terms.
Downsides: Since the money is sourced from other people, it may take a bit longer to get the cash.
Typical APR: Range from 6% - 15% and beyond.
Mortgages are typically not given from any amount under $50,000 and even this can be difficult depending on where you live. If you want to buy a tiny house on wheels, a mortgage simply won't work. This is because, with a traditional mortgage, the bank collatrizes the home itself as insurance against the loan. A tiny house on wheels isn't grounded and therefore not eligible.
Recently, the idea of a tiny house mortgage has started to gain some traction. LightStream from SunTrust Bank appears to be leading the way. They offer payment terms from 24-84 months. These "tiny house mortgages" are essentially personal loans but marketed towards the tiny house community.
Upsides: Using a tiny house mortgage may make them more popular in the future and encourage more innovation. You may also have an easier time explaining your project, since they have experience with tiny houses.
Downsides: Interest rates are still higher than standard mortgages. The payback terms of 2-7 years is still much shorter than 15-30 years on a traditional mortgage.
Typical APR: LightStream's loans range from 5.95% to 15.29%
An RV loan is essentially a personal loan but with the added requirement that you must purchase a qualified Recreational Vehicle (NFPA 1192 travel trailer code). This grants you slightly lower interest rates.
Upsides: Slightly lower interest rates
Downsides: Must be a qualified RV. This may or may not apply to your tiny house unless you purchase a new-build from a tiny house company that specifically certifies their tiny houses as RVs. Tumbleweed Tiny House and Tiny Mountain Houses are two great examples
Typical APR: 4.29% and up
As tiny houses become more popular, some tiny house manufacturers have started offering direct financing to purchasers. Tumbleweed Tiny House Company for example, offers 23-year terms on their models through an integrated RV loan.
Upsides: Much longer loan terms, more similar to a traditional mortgage.
Downsides: Limited number of companies do this. You can't build or design you own tiny house. The longer terms are good but keep in mind that you'll end up paying much more for your tiny house in the end.
Typical APR: 4.29% and up
APR (Annual Percentage Rates)
Annual Percentage Rate (APR) represents the true yearly cost of your loan, including any fees or costs in addition to the actual interest you pay to the lender. (Source: US Bank)
Loan Term: The number of months or years you have to pay back the loan and interest in full.
PMI (Private Mortgage Insurance)
PMI is extra insurance that lenders require from most homebuyers who obtain loans that are more than 80 percent of their new home's value. (Source: Collins Dictionary) Since most tiny house loans are not mortgages and are pesonal loans, this usually does not apply.