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Loans for Home Repairs & Renovations

Acquiring a Loan for a Tiny House—Benefits and Challenges

tiny homes

Tiny homes have become so popular that HGTV’s Tiny House Hunters has run for four seasons. One manufacturer from Wisconsin, Escape Tiny Homes, has reported that their business increased by roughly 200 percent in recent years. These compact spaces are typically used as primary residences, rental units, accessory-dwelling units (buildings next to existing homes) and have even been proposed as a potential solution to homelessness. Tiny home financing, however, hasn’t quite caught up to the marketplace.

Benefits of Tiny Home Ownership

There can be a number of benefits to tiny home ownership. It can provide a mobile lifestyle. It can cut back on your carbon footprint. It can lower your utility bills. But perhaps the most compelling reason for tiny home ownership is the cost.

According to census data, the median home price in the United States as of May 2020 was $317,900. The much lower price point of a tiny house may be one reason why this minimalist lifestyle is gaining traction.

National Debt Relief notes that owning a tiny house can help people pay off debt faster. In general, tiny home dwellers pay less on mortgage or rent, owe less for utilities and simply acquire less stuff because they don’t have room for it. Maintenance and repairs can be lower as well. So there is more room in the budget to manage debt wisely.

In fact, the Tiny House Society reports that 89 percent of tiny house owners have less credit card debt than the average American and 55 percent have more savings.

Zoning Laws, Mortgage Limitations & Tiny House Financing 

One of the things that makes a tiny home appealing may also make it hard to finance: smaller DIY units can be made for around $10,000 while the higher range prefab models go for around $100,000.

An additional financing challenge arises from zoning restrictions which can prohibit purchasing land for a tiny home’s foundation or ban parking a portable home within city limits.

Traditional mortgages may have a minimum loan amount and may only cover buildings with a permanent foundation. Most, if not all, tiny homes fall outside of these considerations.

It can help, however, that many tiny homes are portable and are built on wheels. This may assist with tiny homes being treated like recreational vehicles, even when you use your tiny home as your primary residence.

Many tiny home manufacturers will work directly with financiers to provide customers with tiny home financing in the form of an RV loan. However, this may require a down payment somewhere in the area of 15%-20%.

Additional Expenses of Owning a Tiny Home

The question of how to pay for a tiny house is compounded by the fact that there are also additional costs to consider, including the fees you might incur once you decide where to situate your tiny home.

Your municipality or state may have regulations about where a tiny home can be placed. Different rules may apply if your tiny home is mobile as opposed to fixed on a foundation. Additionally, zoning laws and building regulations may vary greatly from region to region.

This means you need to study up on local laws, regulations and fees that might apply to you when you are considering tiny home financing.

Additional fees may include buying a parcel of land and the associated property taxes, renting a long-term RV spot, a vehicle to tow your tiny home should you need to move, a trailer license and plates and sanitation and septic permits. All of these costs can add up. As with most situations, it is best to know exactly what you are getting into before you make your first move. Thankfully, the American Tiny House Association has compiled a knowledge base of tiny house regulations in the United States for quick reference.

How Personal Loans Can Help with Tiny House Financing

Personal loans are another popular route to obtain tiny house financing. If your tiny home isn’t RVIA-certified or you would prefer to build your home on a foundation, this could be your best option.

Plus, when you take out an unsecured personal loan, you’re not putting up collateral. This means that you may not be required to make a down payment on a personal loan.

Some loans, like Discover Personal Loans include a fixed-rate APR and fixed terms, meaning that your monthly payment will never change and you know exactly when your loan will be paid off. If you’re looking to purchase a tiny home as an alternative to more costly traditional home ownership, these loan benefits are worth considering.

Get started on your road to tiny home ownership by estimating your monthly payments using our personal loan calculator.