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Banks will often disqualify tiny homes from traditional mortgages because of their mobility. Many tiny homes are built on wheels, and banks might consider a portable house, not a real home, but rather a recreational vehicle (RV).
What Is the Average American Mortgage?
The national average for a home loan is close to $225,000, while the average minimum amount approved by banks is $50,000. Banks obviously make more money by lending out larger sums of money. Their strict minimum mortgage amounts will often automatically disqualify several tiny home builders from applying for a mortgage.
What Is a Home Equity Loan?
If you already have a home and are interested in building a tiny home as a vacation home or a secondary home, the easiest way to find financing is through taking out a home equity loan. With this type of financing, the homeowners use the equity they have built upon their primary residence as collateral for a new home. The good part about home equity loans is that the bank will rarely question how you plan to use the loan money. While many people take out home equity loans to improve or renovate their existing homes, using that money to build or purchase a second tiny home is also feasible.
What Is an RV Loan?
Since many tiny homes are built on wheels to help the owners move the home from one spot to the next, it might be easier to apply for an RV loan instead of a traditional mortgage or home loan. RV loans are specifically tailored to recreational vehicles. The institutions financing these types of instruments might ask to see certification that the tiny Home meets the manufacturing and safety requirements of the Recreational Vehicle Industry Association. While RV loans typically have a slightly higher interest rate than mortgages, you should still be able to find a loan for under 8% APR with negotiable term lengths.
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What Is an Unsecured Personal Loan?
An unsecured personal loan is another option for financing your tiny home. These lending instruments usually have interest rates above 10% due to the lender's increased amount of risk. However, if you are planning on placing your tiny home on a foundation (and not on wheels), this may be your best option. While many larger banks have strict requirements for unsecured personal loans, there are several online peer-to-peer (P2P) lending platforms. Prosper and Lending Club are two of the most popular P2P platforms that might help you to be able to get a personal loan to buy or build your tiny home. Since several different individual lenders will view your loan application, you can often find financing options with lower interest rates than what banks offer.
What Is Seller Financing?
You could consider seller financing as a way to pay for your tiny home. You can find owner financed tiny homes for sale on eBay and Trovit. There is even a website specifically dedicated to used tiny homes for sale where you can find many owner financing offers.
Rise Writer
Expert. Practical. Sustainable.
Article by
Tobias Roberts
Tobias runs an agroecology farm and a natural building collective in the mountains of El Salvador. He specializes in earthen construction methods and uses permaculture design methods to integrate structures into the sustainability of the landscape.
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