Tiny houses are loved by many for their clever designs and low costs, but is it really a good idea to pay the entire cost upfront? Financing your tiny home may be right for entrepreneurs, as it would allow you to invest money that would otherwise be sitting around.
An important consideration to take in mind is that the chances of a bank financing a tiny house are lower than usual. Most banks have minimal loan amounts that surpass the average value of a tiny house. Thus, taking a loan for your tiny house requires more footwork.
However, a bank WILL typically finance a tiny home, given that you meet the credit and income requirements. Though, not all loans are created equal. Therefore, the one that you’ll need will depend on the factors below:
- The house location
- The number of square meters the house occupies
- Chances of certifying it as an RV
- Whether the house is mobile or on a foundation
It is important to choose the option that best suits your needs. Luckily, there are several options for financing a tiny home, including:
- Personal loans
- Home equity loans
- Home equity lines of credit
- Mortgage loans
- RV loans
Keep reading and I’ll explain everything you need to know about these types of loans.
Why Choose a Tiny House?
Most tiny houses are mortgage-free. Their prices are also low and easier to pay-off in a short time. Tiny home prices vary depending on the size, type of labor used, materials, and refurbishment. Constructing a tiny house gives you authority over its price since plenty of work can get by oneself.
That is if you are skilled to build a house or do some fittings.
Does a Tiny House Qualify for A Bank Loan?
For a bank to finance a tiny home, the bank requires its construction on a permanent foundation. The bank appraiser also has to find comparable houses within the neighborhood.
Note that finding comparable houses may puzzle you to choose any mortgage lender. But you can consult with your bank loan expert about options.
What Are The Best Loans for Tiny Houses?
The best loans for tiny houses have fair interest rates and are flexible. You can either choose to take.
1. Personal loans
Personal loans are flexible and acquirable in any desired amount, ranging from a minimum of $1,000 to a maximum of $100,000. They are open to any project.
Yet, your bank will need you to have a certain amount of credit score with a good rating.
Personal loan interest rates range from 6% to 35%. So, if your credit history shows some default, the bank may tell you to take a secured loan. Secured loans boast a low-interest rate.
2. Home Equity Loans
Home equity loans are available to people who already own a home. It works by borrowing a small home loan against your existing home.
Banks establish minimal loan amounts for tiny homes. So, if you want to use your equity to move to a low-budget house, it might not be a friendly approach to a home equity loan.
You can use your home equity loan to build a guest house. Adding a tiny home to your main house increases the market value of your home. That means that you’re bound to recoup when the selling time comes up.
3. Mortgage Loans
As earlier mentioned, tiny houses don’t qualify for mortgage loans. Yet, if yours meets all the bank requirements, you qualify for the mortgage.
For your tiny home to qualify for a mortgage, it needs not be mobile. The home must be sitting on a foundation with specified square footage. You can always call your bank for more details and specifications.
4. RV Loans
If you wish to own an RV, worry not since your bank can give you an RV loan. RV is tiny homes on wheels. Mobile tiny houses that meet every standard required by the bank qualify for an RV loan.
Your bank may not give you the loan if you intend to dwell in it primarily. But if it is a secondary dwelling, the RV loan is for you.
5. Home Equity Line of Credit
Home equity line of credit resembles home equity loans. You Secure it against your existing home and fund it with equity in your property. The loan works in the same way as a credit card
It gives you access to limited credit you can withdraw from your tiny home. The equity is ideal for tiny homes because it gives you the privilege to withdraw little bits of cash. You can fund every step of your building whenever you need it.
Yet, always pay back your home equity line of credit rest you risk losing your home.
Do You Need to Finance Your Tiny Home?
Financing your tiny house allows building it well to completion. You can either save up and buy the house with cash, which is the most effective way.
But if you don’t have enough savings, you can take a loan for your tiny house in your bank. Ensure that you have good credit in your account of at least $600 to gain an unsecured or secured loan.
How Do You Finance A Tiny Home?
One major question is, do you have to finance your tiny home as a home or RV? You can either finance your tiny home as a home or an RV, depending on its permanency.
If it is on a permanent foundation, then you can finance it as a home. If it is on the wheels, then you can finance it as an RV.
Yet, there are minimal loan platforms for RV homes compared to a permanent foundation.
What to Consider When Financing a Tiny Home
Before settling to buy a tiny home, there are some considerations you should take. They include:
1. Appreciation vs Depreciation
Every homeowner expects their home to appreciate over the years. That means the resale value of the home ought to rise. This isn’t the situation with tiny homes. They depreciate over time.
If you are taking out a loan to buy a tiny home for resale, you could end up selling it at a lower value than the buying price. Meaning you will end up owing the bank more than what you got.
2. Zoning laws
It is wise to weigh the zoning laws surrounding the tiny home. If you are building it from scratch, consider:
- construction codes
- square-footage limitations
You need to apply before you begin construction. You should calculate the cost of the permits and include it in the loan amount.