Tiny House Loans: How to Finance Your Tiny Home

Personal loans for tiny homes

The online lenders listed above offer personal loans in amounts that can be used to finance all or a portion of a tiny house purchase. Loan repayment terms are shorter than for mortgages — up to seven years, which means you may pay off your tiny home faster, but monthly payments can be almost as high.

Your credit score and income are among the factors that determine if you’ll be approved for a personal loan and the interest rate you receive. Annual percentage rates on personal loans generally range from 6% to 36%; only borrowers with excellent credit (720 and above on the FICO scale) will qualify for rates at the low end of that range.

Personal loans are unsecured and don’t require collateral, so you won’t lose your tiny house or another asset if you can’t repay the loan (although your credit score may take a hit).

Use a personal loan calculator to determine your potential monthly payment and total interest of a tiny house loan.

Personal loans from credit unions

Credit unions can be a good source for an unsecured tiny house loan, and building a relationship with a credit union can increase your chances of approval, says John Kernohan, chairman of the United Tiny House Association.

Credit unions are not-for-profit organizations that serve members who live or work in a particular area. You have to meet the requirements to join and pay a small fee (up to $25) before you can apply for a loan.

Two options are First Tech Federal Credit Union and Navy Federal Credit Union. Both offer unsecured personal loans up to $50,000 that can be used for any purpose, with APRs capped at 18% and repayment terms up to seven years.

Loans through a tiny house builder

Tiny houses may be financed through a lender that partners with a builder. The loans are either unsecured (based primarily on your credit score) or secured by the tiny house, according to Kernohan.

The potential benefits include low starting rates (typically under 10%) and longer loan terms (10 to 20 years or longer) than personal loans.

But this option may require a down payment of up to 20% of the purchase price, and if the loan is secured, you can lose the tiny house if you can’t make payments.

Tiny homes on wheels may qualify for RV loans, but only if the vehicle is certified as an RV by the Recreational Vehicle Industry Association.

Home equity loans

Home equity loans and lines of credit are available if you own a home and want to add a tiny house to the land as an accessory dwelling unit or buy a mobile tiny home.

The benefits of home equity loans may include low rates and long repayment terms (typically up to 20 years), which allow lower monthly payments. But you’ll need home equity to qualify (determined by an appraisal), and you can lose your primary home if you can’t make payments.

Using home equity to finance the purchase of a tiny house can be risky and works best if the property generates income as a rental, Kernohan says.

“You’re taking equity away from your home, and there’s no guarantee that adding the tiny house to the land will boost its value,” he says.

Tiny house financial risks

A tiny house can have a positive or negative impact on your finances. The benefits may include lower housing expenses and less upkeep. But factor these costs into your budget:

• Purchasing land or leasing a lot.
• Parking fees at campgrounds and fuel if you take your tiny home on the road.
• RV insurance, construction insurance or homeowner’s insurance, property taxes and permit fees.
• Propane tanks for a tankless water heater.
• New appliances that fit the home.
• Typical housing maintenance and repairs.

Tiny homes also don’t have wide resale appeal, and there are few listed on the multiple listing service used by real estate brokers. If you want to sell at some point, your options may be limited to a niche marketplace, such as Tiny House Listings. Renting your tiny home may be another option if there’s demand in your area.