Massive mortgages, rising interest rates, and expensive utilities are leading to an uptick in downsizing, with many Americans shifting from suburban homesteads to so-called tiny-houses.
The diminutive dwellings — generally smaller than 400 square feet with a price tag between $10,000 and $100,000 — are popular among young people, retirees and anyone in between hoping to reduce the expense of homeownership.
But because of their unique proportions, these mini-mansions often aren’t financed the same way other homes are. Here are some options.
Get a mortgage
Tiny houses don’t require huge loans with sizable interest payments. And with so little payout, traditional mortgage lenders often don’t want to bother with reams of origination and servicing paperwork.
Some 68% of tiny house owners don’t have mortgages, compared to 29.3% of all U.S. homeowners.
Source – The Tiny Life blog.
But with a mortgage, you’ll have access to longer payback terms, lower rates and the interest payments are tax deductible. If your humble abode sits on a permanent foundation, you might have some luck landing one. Bonus points if you’re having a professional construction company build the structure.
Not sure how to find a mortgage lender? Here are 6 tips to finding the best mortgage company.
That’s because mortgage lenders are looking both for borrowers who are unlikely to walk away from their debt and for properties that will hold up over time and retain or grow their value.
Major financial institutions will be more reticent to underwrite a small loan. So check out our basic mortgage guide and then talk to your local bank or credit union for tiny house options.
Get manufacturer financing
Companies that sell tiny prefabricated houses sometimes offer payment plans and other financing deals for customers. Ask the manufacturer whether there are loan option adjusted for specific models or extras such as a washer-dryer unit or a compost toilet.
Get an RV loan
If your tiny house is built on a trailer, you might be eligible for an RV loan.
Different states define recreational vehicles differently, but generally, your home must be mobile and certified by the Recreational Vehicle Industry Association as meeting manufacturing and safety regulations.
These loans generally carry interest rates between 4% and 7% over 7 to 15-year terms, with 10% to 20% down required. If your tiny home is your main abode, you may have to look elsewhere – RV loans often aren’t intended to cover primary residences.
Try peer-to-peer lending
The tiny house community is close-knit and dedicated to the concept of simple, sustainable living. Try matchmaker services like LendingClub that connect borrowers to lenders based on credit history, requested loan amounts and other factors.
Or personal loans
Many tiny home owners use general personal loans to finance their property, shelling out for the higher interest rates and betting that they can pay back the funds within a shorter time-frame than other types of loans.
If you have stellar credit, you might qualify for an unsecured loan that doesn’t require you to put down collateral. Lightstream has a loans specifically for tiny houses with fixed rates as low as 4.29% with automatic payments and loan amounts from $5,000 to $100,000. Terms range from 24 months and 84 months, with no home equity or down payment requirements.
Lightstream spokeswoman Julie Olian said the company looks for lenders with several years of credit history and a variety of accounts, good payment history and evidence of savings habits.
“If they’re approved, their money can be used to purchase a tiny home or for any renovations, land or expenses that would be associated,” she said. “The applications for tiny house loans have continued to grow at a relatively steady pace — it’s a category that’s really emerged over the last couple of years.”
Even with poor credit, you can qualify for a tiny house loan. You will need to pay higher rates, but making regular payments on your loan can, over time, improve your credit score.
A secured personal loan — which will usually feature a lower interest rate and more money than the unsecured alternative — is another possibility.
Other financing options
Depending on how much of your tiny home you need to finance and how quickly you can pay it back, consider credit cards. Some providers offer 0% introductory rates for up to a year and a half — check out options here.
A home equity loan or home equity line of credit could work if your tiny home is a secondary home or a vacation property — just draw funds from your primary residence.