Can You Finance a Tiny Home? Here’s What You Need to Know

published May 15, 2018
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(Image credit: Ana Kamin)

Those trendy 500-square-foot tiny homes sure are cute and it’s a cool idea reduce your environmental footprint and embrace conscious “micro” living. But though these homes may be but little, they can be fiercely difficult to finance, since traditional home mortgages aren’t always an option.

“Mortgage companies generally will lend only on homes with permanent foundations and where the homeowner also owns the land,” says Holden Lewis, NerdWallet’s mortgage expert. “If the tiny house is on wheels or if it’s located on someone else’s land, a mortgage company might not do business with you.”

In addition, many mortgage companies don’t offer loans under $50,000, since they don’t offer a worthwhile financial kickback to the lender. But if you really, really want a tiny home (and don’t have the cash to buy one up front) there are still options to finance. Here, three to consider.

Option #1: Reach out to the bank of mom and dad

If you’re lucky enough to have a parent with enough cash to loan you the money (and who doesn’t mind you asking), that can be one option. And if they don’t have enough cash on hand, but still want to help out (lucky you!), there’s always the option of dipping into their home equity. “If your parents own a home and have built up equity, you can ask them to get a home equity loan or home equity line of credit, then borrow the proceeds from them,” Lewis says. “This way, you can repay their loan over time.”

Option #2: Find a specific type of tiny house builder

Your goal: Find a builder whose tiny homes can actually qualify as mobile homes. “In this case, you might be able to shop around and find a mobile-home lender that will grant you the money,” he says. Specialty lenders offer loans for boats, airplanes and recreational vehicles, and the tiny home you’re looking to buy may classify as a recreational vehicle (RV). “However, keep in mind that these lenders might require you to have a primary home that’s not the RV you’re trying to get the loan for,” Lewis says.

Option #3: Seek out an unsecured personal loan

An unsecured personal loan gets its name from the fact that you’re not guaranteeing any property as collateral. Lenders consider these a greater risk loan than secure loans, and that means you’re going to end up paying more total. “The interest rate with this sort of loan will be higher than the rate on a mortgage, but it’s probably going to be less than the rate on a credit card,” Lewis says. Keep in mind, though, that to qualify for an unsecured personal loan you need a high credit score.

So while a tiny home of your own may be more out of reach financially than a regular-sized home, it doesn’t mean you can’t still dream about them: Here, 75 of the prettiest, most compact homes for you to fantasize about.