Financing a Tiny Home

There are many reasons why tiny home living aligns with sustainability-focused values. With an average cost of $65,000, owning a tiny home can also feel more financially feasible than a traditional home. Relative affordability is one of the major factors that makes it an appealing housing option for retirees, Millennials and Gen Z. In addition, tiny homes are an option for local governments to address the affordability crisis. In this post, we will describe options for financing a tiny home.

Tiny Home Market

While the tiny house movement has grown over the last several decades, it is still on the fringe of the housing industry. There are approximately 10,000 tiny homes in the US – less than 1% of the overall real estate market. With the advantage of scale, backed by the force of habit, financing a traditional home requires less hassle on the part of the bank. Financial tools such as mortgages were created with the conventional home in mind. Additionally, because tiny homes are considered outside the norm, banks view them as risky. Finally, the small size of the loan also makes the transaction less appealing for the lender.

Options for Financing a Tiny Home

Financing Through Existing Assets

It’s estimated that over 40% of tiny home owners are Baby Boomers. This segment of buyers is more likely to be able to pay cash or use an existing asset as collateral to fund a tiny home purchase. Selling or refinancing an existing house or accessing retirement savings may be financing possibilities. For people with an existing home on a larger lot, it may be possible to subdivide the property and build a tiny home on site (check local regulations!). On the other end of the spectrum, patient and intrepid DIYers may decide to build their own tiny home. These DIYers often save up along the way and use their own sweat equity to get their tiny homes built.

Financing Through Loans

Not everyone is able to fund their tiny home through existing assets. There are a limited number of other options for financing a tiny home.

  • Personal loan – You may be able to secure a personal loan of up to $50,000. These loans may not require collateral, meaning you won’t lose the tiny home or other assets if you default on the loan payments.  However, personal loans typically offer shorter repayment periods and have higher interest rates than a traditional mortgage. As with other loans, having a high credit score will make a difference in your ability to secure financing.
  • RV loan – If your tiny home has wheels, you may be able to apply for a Recreational Vehicle loan. Check if your home meets the RV Industry Association specifications. As with a personal loan, the terms of an RV loan are typically less favorable than a mortgage. If you are not a landowner, don’t forget to include the cost of renting a parking spot to your calculation of future monthly bills.
  • Land and construction loans – While this may sound appealing, the process to get a land loan or construction loan is trickier than getting a loan to buy an existing structure. Many banks do not offer these types of loan and the requirements are stringent. Remember to check the regulations in your state, as some areas many not allow homes below a certain size.

Future Financing Options

As tiny homes gain popularity, more options are likely to emerge. Lightstream, a division of SunTrust Bank, stands out with its products and marketing specific to the tiny home market. Tiny home aspirants may also be able to secure financing through a tiny home building company. As local governments look for solutions to the housing affordability crisis, new public-private partnerships and philanthropic efforts may emerge to help fill the financing gap.

Final Notes

Because a tiny home is considered non-traditional, people who want to own one have to get creative about financing. However, with 63% of Millennials indicating an interest in tiny home living, a market opportunity exists. Financial institutions may decide to address this opportunity with new financial products for tiny homes. The good news is, because the home is smaller, it’s most likely cheaper to build and maintain. The lower overall price tag means that the financing to purchase or build a tiny home can be paid off faster than the typical 30 or even 15-year mortgage. Even better, an estimated 67% of tiny home owners are mortgage free, a step in the direction of individual financial freedom.  

Photo by Courtney Blodgett