Tiny houses can be extremely satisfying to look at, but when you’re ready to move from pinning images of them on Pinterest to actually owning one, a number of tricky real world challenges arise. There’s the matter of where you can build and park them legally for full-time use—which we have addressed in a previous installment—and then there’s the money stuff, like financing the purchase of a tiny house. Indeed, as the tiny house industry matures, options for financing these alternative dwellings are also slowly emerging.
While tiny houses are billed as a more affordable alternative to the traditional house or apartment commanding a hefty down payment and mortgage, the latest turnkey models often ask for anything between $50,000 and $100,000—an intimidating sum, though still less than what you need for a traditional home loan.
For those unable to pony up the cash themselves or secure funds through family and friends (buying out the tiny house from the get-go is still the best case scenario), there are a few other options.
Finance directly through RV-certified tiny house builders
Just as is the case for navigating building and zoning codes, financing is more straightforward with RVIA-certified tiny houses since lenders consider them similar to RVs. Major tiny house RV builders like Colorado’s Tumbleweed and Wisconsin’s Escape work with lenders to offer financing for customers who qualify, and typically require a 15 to 20 percent down payment.
Both have quick financing applications online. Tumbleweed’s rates vary but the company says its loans can start from $400 a month and usually last 15 years. A typical financing plan with Escape has a 4.5 to 5.5 percent APR. According to Escape, about 30 percent of its customers finance through the company directly.
Again, securing a standard bank or credit union loan is easier for tiny house RVs. Still, there are also a few online lenders that are ready to cater specifically to tiny home buyers. Lightstream, a division of SunTrust Bank, offers fixed APR rates—which are lower for RV-certified builds—and comes recommended by builders like 84 Lumber and Tiny Heirloom.
Backed, a personal loan startup with a cosigner-friendly model, has a product customized for tiny house buyers, who the company sees as a “lower risk community” since going mortgage- and debt-free is one of its cherished values. This involves a loan amount of up to $35,000, lasting up to five years, with an inherent APR reduction baked into the application.
With Backed, adding a cosigner can reduce APR rates and the entire cosigning process is completely digitalized, including payment notifications and a 15-day grace period for covering a missed payment. Backed is currently only operating in New York, New Jersey, Florida, Arkansas, Alaska, and West Virginia, but will work with affiliated lenders to accommodate applicants from other states.
The bottom line
The best option for buyers will largely depend on their income, credit history, and existing assets. For example, those who are already have a mortgage on a traditional house might even consider a home equity loan for, say, a tiny house on their property to serve as a secondary dwelling.
According to Kai Rostcheck, who ran tinyhouselending.com (a now defunct site that connected tiny house buyers with suitable loans), tiny house loan seekers should also consider any additional costs of ownership, like monthly parking fees.
“If you take out a $1,000 a month loan, that might be quite favorable compared to rent in many areas of the country, but add another $500 for parking and the value proposition may shift,” he explains.