What is tiny house financing?
Genn and her husband designed a 39-foot-long house that will be completely solar-powered and include a claw foot bathtub when it’s built.
If you estimate how much house you can afford, you might consider even tinier or simpler homes. Tiny houses, by definition, are typically 100 to 400 square feet and built on wheels or purchased land.
But small isn’t free. The average humble abode costs $23,000 to build, according to iTRaC. Already-built models are typically available for less than $75,000.
Unless you have the cash on hand for your tiny home, you might consider borrowing. Your options include:
Home equity line of credit (HELOC): If you’re looking at making a tiny home your second home, you could borrow against your existing mortgage. The downside of a HELOC is that it’s a secured loan, meaning your home acts as the collateral and could be seized if you default.Home mortgage: If your tiny home is big enough to comply with local building codes and rests on a permanent foundation, it could qualify for a traditional mortgage. But you’d also have to borrow a larger amount of money.Recreational vehicle (RV) loan: If you’re looking for your tiny home to have tiny wheels, you could look to banks and credit unions for RV loans. SunTrust Bank, for example, works with tiny home builders and sellers to offer financing. Just ensure your home will be certified by the Recreation Vehicle Industry Association to be eligible.Personal loan: Like RV loans, unsecured personal loans won’t require you to post any collateral to guarantee the debt. Instead, you’re judged on your creditworthiness. The better your credit, the lower the rate you could receive. Personal loans also come with more flexibility, as many lenders place few restrictions on how you use the money, whether your mini mansion is set on wheels or planted on the ground. You could even use personal loans to buy a piece of land for your tiny home to rest.
To afford their more luxurious choice, the Genns borrowed $75,000 using a personal loan from a bank but only after exhausting their initial option.
“In our experience, obtaining a personal loan was significantly simpler than obtaining an RV loan,” Genn said via email. “The banks we spoke with regarding RV loans were happy with our credit scores but skittish about our thin credit history.”
5 personal loan companies offering tiny house financing
If you’re like the Genns, a personal loan might be the best way to finance your pocket-sized pad.
Below are five top personal loan lenders we’ve vetted for quality that offer lending services for major purchases, such as a tiny house. Each lender features an easy online application.
Upstart personal loans come with an APR range of 7.46% to 35.99%Borrow between $1,000 and $50,000Repayment terms of three or five yearsQualify with a credit score of 620 or betterYour APR will be determined in part by factors such as your education and careerNo prepayment penalties if you plan on paying down your debt earlyOrigination fee of 0% to 8% of your loan balance
LendingClub personal loans come with an APR range of 6.95% to 35.89%Borrow between $1,000 and $40,000Repayment terms of three or five yearsQualify with a credit score of 600 or betterCompare offers using the peer-to-peer lending platformNo prepayment penalties if you plan on paying down your debt earlyOrigination fee of 1% to 6% of your loan balance
3. Citizens Bank
Citizens Bank personal loans come with an APR range of 6.79% to 20.89%Borrow between $5,000 and $50,000Repayment terms of three, four, five, six, or seven yearsQualify with a credit score of 680 or betterNo prepayment penalties if you plan on paying down your debt earlyNo origination or administrative fees
FreedomPlus personal loans come with an APR range of 5.99% to 29.99%Borrow between $10,000 and $35,000Repayment terms of two, three, four, or five yearsQualify with a credit score of 640 or betterNo prepayment penalties if you plan on paying down your debt earlyOrigination fee of 0% to 5% of your loan balance
SoFi personal loans come with an APR range of 5.74% to 16.24%Borrow between $5,000 and $100,000Repayment terms of three, five, or seven yearsNo prepayment penalties if you plan on paying down your debt earlyNo origination or administrative feesLate fee forgiveness after you make three consecutive on-time paymentsOffers the ability to pause your repayment if you lose your job
Find the right tiny house financing option for you
You’ll want to shop around for tiny home financing the same way you’d shop for other types of loans:
Figure out your ideal borrowing amount, APR, and repayment term before looking for a lender to meet your specific needs.Compare offers from all types of lenders, including traditional banks, credit unions, and online personal loan companies.Use the APR to judge each offer accurately, as it includes both your interest rate and the lender’s fees.
The Genns, for example, wanted to borrow $75,000 at the lowest possible rate. They found a personal loan product that rewarded them for their excellent credit scores, offering a 7.00% APR and 20-year repayment term.
“After all the headache of trying to obtain an RV loan … we were so relieved and excited that a [personal] loan was going to work out for our home,” said Genn, who is planning a June move-in. “We quickly made a plan to pay the loan [off] in a speedy manner and avoid the downfall of a higher APR.”
In fact, they’ll increase their monthly payment from $581 to $1,500 to save $50,757 — and 15 years — on their loan.
Make use of our personal loan calculator to hatch a plan for your repayment. Plug in your borrowing amount, preferred repayment term, and an interest rate you can expect to be quoted. It’ll pump out your potential monthly payment and interest charges. Then figure out how to pay off the loan ahead of schedule.
There are plenty of strategies to pay off your loan early. For one, you could rent out your property, especially if your tiny home has a tiny spare room.