The average traditional North American home sells for around $188,000. Comparatively, the cost of a tiny home” (less than 600 square feet) averages $30,000. Customization options can significantly increase the price of a tiny home.
Typically, tiny homes are also mobile homes, though some of these houses are built on purchased plots of land. Based on numbers alone, tiny homes offer some attractive financial benefits. Obtaining financing for a tiny home, however, isn’t easy.
As noted by Andrew Feldman of Triplemint, “tiny homes are difficult to finance because generally, banks don’t see the value in them.” Not only is this often the case, but it’s also one of the main reasons why tiny homes remain a pipedream for many.
But, if you have a dream of owning a home that embodies minimalism to the max, there are other, non-traditional options worth considering.
The True Cost of Building a Tiny Home
There is such a thing as a “home in a box” that will set you back around $30,000 (plus the cost of an electric drill), but most people don’t have the skills necessary to construct an Ikea-style tiny home. Ross Beck, COO of Tumbleweed Tiny House Company, adds that ‘…there are several companies offering workshops on how to build a Tiny House as well as offering plans and, in some cases, trailers designed specifically for tiny houses and their greater weight.’
Tiny homes are difficult to finance because generally, banks don’t see the value in them.”
If you’re not handy, a ready-made house is your best option. Beck notes that ‘ready-made tiny houses fall into two distinct categories, either a certified Recreational Vehicle (the VIN indicates it is an “RV, Travel Trailer” ) built by a Certified RV builder, or a non-certified RV (the VIN indicates it is a “Trailer” with a load).’
Either way, it’s a good idea to break down the costs of building and owning a tiny home before searching for financing.
Here’s a rough estimate of how much a tiny home will really cost to build.
- Trailer costs. Most tiny homes are also mobile homes. This means that you have to add in the cost of the trailer (around $5000) and any applicable registration or licensing fees.
- Customization options. One of the larger appeals of owning a tiny home is the ability to spend thousands of dollars on customizing that home. These costs vary depending on the quality of materials and appliances chosen.
- Zoning and regulation costs. Thinking of parking your home in an urban center? You’ll need a permit for that. In some states, parking a tiny home on a random plot of land is illegal. In others, you’ll have to pay hundreds of dollars to stay and play.
Now we have an idea of how much tiny homes cost, let’s consider what financing options we have that don’t require a bank.
Ways to Finance a Tiny Home
Marketplace lending platforms
Marketplace lending platforms provide a simple way to connect borrower and investors. If you have good credit, you might be able to obtain a marketplace loan with rates as low as 6% APR. Prosper and LendingClub are the biggest marketplaces in the business.
Home Equity Line of Credit (HELOC)
If the construction of a tiny home happens to be your second home, Dennis McNamara of Lighthouse Financial Advisors, LLC, suggests, “using a Home Equity Line of Credit from a primary home. HELOC’s typically have low interest rates.” McNamara also suggests that building a tiny home can be a “great investment,” adding that eliminating a monthly rent check and scaling back on living costs may mean more money in your wallet.
Apply for a Recreational Vehicle (RV) loan
Tiny homes that sit on movable platforms (such as the ones sold by Tumbleweed) can be considered RVs and qualify for an RV loan. Standard RV loans have rates between 5% and 6%. ‘The advantages of a certified RV, Beck notes, is that there are multiple agencies providing RV insurance and RV financing. There are about six certified RV Tiny House builders in the USA but that number is increasing, so visit Recreational Vehicle Industry Association (RVIA) online directory for more information.
Some tiny home manufacturers have built-in product financing that might be worth considering depending on loan terms.
An unsecured loan doesn’t require any collateral, so interest rates tend to be higher. If you have a secure job, a low amount of debt, and a great credit score, an unsecured loan might be a viable option.
Local private equity loan
Why local? As GieFaan Kim of Triplemint notes, “only local eyes will understand where the value lies and consider the deal. Someone from Idaho or even New Jersey will have an impossible time seeing value in a tiny house selling for $1m in Manhattan.” So, look locally first.
The Traditional Loan Route
You shouldn’t exclude a traditional mortgage loan altogether. Even though banks don’t often see the value in a tiny home, you might have some leverage if you happen to be an excellent client. Feldman says, “the trick to ensuring best rates and lowest costs, is to do all of your banking with one bank (credit cards, savings, investment account, etc.), so you can be a premier customer. Banks tend to bend the rules and be less restrictive for these clients.”
So, if you can wait a year or two (with the goal of becoming a premier banking customer), you may find that your bank is willing to “bend the rules.” If not, exploring all of the options listed above is the best way to make your dreams of living the free life come true.
As a first step, check what rates you qualify for with a personal unsecured loan. Fill in this short form, and you will see what rates and terms you prequalify for without hurting your credit.