How to Finance a Tiny Home

Tiny homes can offer home buyers lower costs, compact living and flexibility compared to full-size homes. Tiny homes also tend to be more eco-friendly, since they use less energy and fewer materials to build and maintain. But because many tiny homes don’t meet criteria for standard mortgages — such as minimum square footage or permanent foundations — financing options often look different than for traditional houses.¹

If you’re interested in financing a tiny home, you still have paths forward. Read on to learn more about how to get a loan for a tiny home.

What is a tiny home?

A tiny home is usually defined as a fully functioning dwelling under about 400 square feet.² Tiny homes can be built on wheels or they can be permanent structures on foundations. Many tiny homes use efficient design principles to maximize livable spaces and create functional areas.

Some reasons you might choose a tiny home include:

• Lower cost compared to full-size homes
• Flexibility in design and mobility, especially when built on a trailer
• Less maintenance than a full-size home
• A simplified lifestyle that prioritizes minimalism

How much do tiny homes typically cost?

The cost of your tiny home will depend heavily on your design, location and how it’s built. You also need to budget for land, utilities and ongoing expenses.

Home price

Many tiny homes built by professionals fall into the $30,000-$70,000 range, depending on finishes, size and materials.³ Some budget kits or DIY versions may be less, while custom or “designer” tiny homes can exceed that price range.⁴ You may also purchase a prefabricated tiny home, which may be less expensive but is also less customizable.⁵

Land

If you don’t already own land, you’ll likely need to purchase or lease a plot or pad where you will place your tiny home.⁶ Land prices vary dramatically by region — rural areas might be relatively affordable, whereas lots near cities or in desirable zones can be much higher.

Utilities

Hooking up electricity, water and sewage (or installing off-grid systems like solar, wells or composting toilets) can add thousands of dollars to your setup costs.⁷ Ongoing utility costs can vary depending on the type of tiny home you have. If your tiny house is connected to the power grid, you’ll still need to pay your monthly electricity, water and sewer bills, although these may be lower than they would be for a traditional house. If you’re going off grid, there will likely be monthly maintenance costs to consider. For example, installing a composting toilet may help you save water, but you’ll still need to buy a composting agent, like sawdust.⁸

Ongoing costs

Don’t forget maintenance, insurance, repairs, property taxes (if your tiny home is on a foundation) and community or parking fees (if your tiny home is on wheels).⁹ Over time, these expenses add up and should be included in your budget.

What are the financing options for a tiny home?

Because tiny homes are small and may even be mobile if attached to a trailer, lenders often treat them as personal property or recreational vehicles rather than real estate. A traditional mortgage loan is generally not an option for a tiny home.¹⁰ Depending on whether your tiny home is fixed or mobile, you might have different options for financing.

Personal loan

A personal loan is a lump sum you receive from a lender, bank or credit union that you can use for a variety of expenses, including financing the purchase of a tiny home.¹¹ Some people use personal loans to pay for tiny homes, since tiny homes don’t often qualify for a traditional mortgage. When you use a personal loan, you repay the loan over time with interest (the cost of borrowing), usually in set monthly installments. Personal loans typically have fixed interest rates, so your payments stay the same throughout the loan term (the predetermined length of time for repayment) as long as you pay on time, every time.

A personal loan can be secured or unsecured. A secured loan is backed by something of value that you possess, called collateral, while an unsecured loan does not require collateral. With a secured loan, you may get a lower interest rate or more favorable terms, but the lender has the right to take your collateral if you don’t repay the loan.

Builder financing

Some tiny-home builders offer financing in partnership with lenders, so you can pay back the cost of the build in installments.¹¹ When you use builder financing, you may be able to get financing as part of the tiny home purchasing process. Always compare the builder loan offer against other loan offers to make sure you’re not paying a higher interest rate or hidden fees.

Home equity loan or home equity line of credit (HELOC)

If you already own a home as your primary residence, you may be able to tap into your equity to finance your new tiny home. Equity is the difference between what your home is worth and what you owe on your mortgage. Typically, lenders require you to have 15-20% equity for a home equity loan or HELOC, though standards vary.¹² A home equity loan gives you an upfront lump sum with fixed repayment terms, while a HELOC lets you borrow as needed and repay over time. Because home equity loans and HELOCs are secured by your property, the interest rates tend to be lower than unsecured options.¹³ But the risk is high — if you can’t repay, the lender may seize your primary residence to recoup their costs.

RV loan

If your tiny home is built on wheels and certified by the RV Industry Association (RVIA) or a similar body, it may qualify for an RV loan.¹⁴

RV loans are like auto loans — they generally offer fixed interest rates and set repayment schedules, and they’re secured by your vehicle.¹⁵ Not all tiny homes are eligible for RV loans, so make sure you confirm your tiny home is certified. Certification also reassures lenders that your home meets safety standards.¹⁶

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Turn the key to tiny living

Financing a tiny home takes research and comparison, but the legwork may be worth it to fully understand your options. With a solid financing plan, you can make the most of what a tiny home has to offer, whether that’s lower housing costs, a more minimalist lifestyle or the flexibility to take your home with you wherever you go.

Sources

1, 6, 10, 12 https://www.nerdwallet.com/article/mortgages/buy-tiny-house
2 https://codes.iccsafe.org/content/IRC2018/appendix-q-tiny-houses
3, 5, 7, 9 https://homeguide.com/costs/tiny-house-cost
8 https://learn.eartheasy.com/guides/closing-the-loop-composting-toilets-and-your-garden/
11 https://www.investopedia.com/what-s-the-best-way-to-pay-for-a-tiny-house-a-tiny-mortgage-or-a-personal-loan-11723843
13, 14 https://www.nerdwallet.com/article/mortgages/home-equity-loan-line-credit-pros-cons
15 https://www.rvia.org/system/files/media/file/Tiny%20Homes.pdf
15 https://www.bankrate.com/loans/personal-loans/how-to-qualify-for-an-rv-loan/
16 https://www.rvia.org/advocacy/policies/what-rv