Tiny Home Financing: The True Costs Revealed
By Marissa Bennett
You’ve seen them in TV shows. Probably even seen a few in various magazines. Tiny home living is really catching on, and for good reason: It will save you money and it’s better for Mother Earth.
There’s just one problem: no one is actually talking about how to actually finance a tiny home purchase.
Whether you’re simply curious or are looking for serious answers, you’ve come to the right place.
Here’s everything you need to know.
Table of Contents
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Word Count: 2,200
What types of tiny homes are there?
Before you can finance a tiny home, you need to know what kind you want to live in because how you finance your tiny home depends on the type of tiny home you want.
You can choose between a structure with a permanent foundation or a tiny home on wheels, but no matter which you choose each comes with its own set of benefits and hurdles.
Example of a tiny home with a permanent foundation.
Photo courtesy of Travis Grossen via Unsplash.
You have a choice between a tiny house with a permanent foundation, meaning it is rooted to the ground like a traditional home, and a Park Model RV (PMRV).
A PMRV is a sort of mobile home that is secured to a frame. It is towable with the average car.
Example of a mobile tiny home capable of being towed. Also known as a PMRV.
Photo courtesy of James Frid via Pexels.
Think about the type of lifestyle you want. Do you want to spread roots, or do you want the freedom to roam?
What financing options are there?
Bad news time: Tiny houses, regardless of type, do not qualify for mortgages under most circumstances. This is because the cost of the loan is not high enough for a person to receive approval from a financial institution. Depending on the bank or lender, the minimum amount is usually around $50,000. Most tiny homes don’t cost nearly that much (which, of course, is why they’re so popular).
HOWEVER, you still have options.
They are:
Personal Loans
RV Loans
Peer-to-Peer Loans
Personal Loans
An unsecured personal loan is a loan that is not backed by a physical object that can be used as collateral, such as a house or a car. You can receive an unsecured personal loan from any lending institution and use it for whatever you want — in this case buying a tiny home. Most banks offer up to $50,000 in personal loans, but others may offer up to $100,000 depending on your income and credit score.
Your bank will set the interest rate of your loan based on factors like your credit score, your income, the amount you borrow, and the loan’s term. The term — the length of time you have to repay your loan — is shorter for a personal loan than for a mortgage, usually ranging between one and seven years, with higher interest rates for longer terms. Interest rates will vary across institutions, but you can expect to find rates anywhere from 5% to 36% APR.
You can use an unsecured personal loan for your tiny home with or without a permanent foundation.
LightStream Loan
If you have a good credit score (660 or above), and you have a strong credit history dating back several years, you might consider getting a personal loan from LightStream.
A division of SunTrust Bank, LightStream specifically offers financing options for tiny homes both with permanent foundations and those considered PMRVs.
LightStream offers:
5.74% to 17% interest rates
Loans up to $100,000
Two to seven year loan terms
$0 down payment.
Loans in all 50 states
Applications are submitted and processed entirely online making it a convenient option if you are already on the go.
RV Loans
If your home meets the definition of a PMRV you could qualify for an RV loan.
RV Loans are often unsecured loans because banks often do not recognize PMRVs as fixed assets — in other words, most banks won’t view them as sufficient collateral to secure a loan. For this reason interest rates will be higher compared to financing a traditional RV, and you may have to shop around for a bank that will finance your PMRV.
However, the advantage to seeking out an RV loan over a personal loan is that you can take out a larger loan if needed. Most RV loans do not have limitations on how much you can borrow, so if the tiny-home-on-wheels of your dreams costs more than about $50,000, this may be the right choice for you. You can also receive approval for a longer loan term, with a repayment period of 15 to 20 years.
Interest rates usually range between 4% and 25% — which are lower than those offered for personal loans.
Peer-to-Peer Loans
The tiny house community is a close-knit one. If you can’t get approval through traditional financial institutions, consider peer-to-peer lending sources from other small-scale dwellers. Online institutions like LendingClub offer loans from individuals on what is considered a secondary market, which could be right for you depending on how much you want to spend.
Where can I put my tiny home, and how much will it cost?
Where you live greatly affects your lifestyle. Before purchasing your new home, you should research your local laws and how they will impact your tiny home-buying options. You may not be able to put your tiny home where you want!
Zoning Laws and Land
Municipal zoning laws in many cities limit where people can install small residential structures by requiring a given minimum square footage, which many tiny houses do not meet. However, rural areas often do not have these laws, so you might consider purchasing a plot of land where you can either build a tiny home yourself or fix a pre-built structure to the ground.
Your plot of land doesn’t have to be hundreds of acres as of 2015, the median size of sold lots was under 8,600 square feet, or less than 0.2 acres.
Photo courtesy of Utsman Media via Unsplash.
You can see the average lot size for your region here, and research the average cost of an acre in your state here.
How much does land cost?
The average cost of an acre of land in the US is about $12,000, which is skewed towards land available in Middle America. This price increases on the coasts, where the cost increases to $30-40,000 and more. Imagine you purchase 0.2 acres to build your tiny home — that will come to between $2,500 and $8,000 on average, not counting broker fees.
If you prefer to live in an urban area and have the connections or means to do so, you might consider reaching a deal with family or a friend who owns their own residential lot and would sponsor your tiny household on their land. Depending on the zoning laws in your town, installing your home on property in the city can qualify as an accessory dwelling unit (ADU) and allow you to circumvent policy which would otherwise prevent you from living the minimalist cit
Things to keep in mind with on-the-go living.
If you’re looking to make the full-time switch to tiny-house-on-wheels living, check your state and local laws. It might be illegal if you intend to park in certain areas permanently.
Building codes, zoning laws, and property restrictions in your area may prohibit living full-time in a PMRV because of laws against living in a vehicle, even if you own the land.
Plus, if you intend to park on a friend or loved one’s land in a city or suburb, check to see if their Homeowner’s Association has any restrictions about RV or PMRV parking. Even if a municipality doesn’t outlaw it, HOAs can prohibit RV parking independently.
RV Lots
If your tiny house is RVIA-certified as a PMRV, meaning it meets safety and regulatory standards set by the Recreational Vehicle Industry Association as a towable residence, consider setting up shop on an RV lot. Many RV parks do not admit uncertified PMRVs, but if you purchase one pre-certified, you can park it at any RV grounds that accept PMRVs.
Research parks in your area that will welcome your new home. You can expect to pay between $30 and $50 a night to stay at an RV park, which works out to about $900 to $1500 per month in rent. You can also stay at campgrounds and mobile home parks, all with varying associated fees.
Of course, this goes against the tiny-home philosophy, but it’s an option you should know about, nonetheless.
Nano-Neighborhoods
Tiny house communities are popping up all over the country. There may even be a tiny house community near you. If you’re interested in living next to like-minded minimalists, you can rent a space to start your household with people who have the same values as you.
What will I pay for my tiny house?
After you have decided where to permanently establish your home, you must consider how you want to acquire your tiny home — in other words, if you want to buy a pre-built house, or build one yourself entirely on your own.
Pre-Built and DIY-Kits
A pre-built tiny house with a finished interior might cost between $40,000 and $75,000 if you want to live in a space closer to 400 square feet (the price, of course, decreases the smaller the square footage). If you want to prepare the interior yourself, you can expect to pay about half that price.
If you have the time and inclination to construct your own home but don’t want to start from scratch, you can buy a DIY tiny house kit that you put together yourself the way you would ready-to-build furniture. These kits cost on average from $5,000 to $15,000. Just keep in mind that the cost of the foundation and interior are not included in certain models.
Build it Yourself
If you want to build your own tiny home from start to finish, you first have to acquire a building permit, which can range from hundreds to thousands of dollars. In terms of building costs themselves, you can expect to pay $23,000 on average, with the potential to spend as little as $3,000 on construction (depending on the size and materials you use). You’ll also need to consider wiring your home for electricity, as well as installing plumbing and heating. These additional costs will vary depending on where you live and what you want.
PMRVs
A PMRV-designated tiny house will have similar costs as one with a permanent foundation, minus the cost of land. Instead, you must consider the cost of parking, the car you use to tow your PMRV, and gas - and if you’re building your own PMRV, the cost of the chassis, which could be several thousand dollars all by itself.
When deciding if a wheeled residence is right for you, remember you will have to tow your PMRV wherever you travel, which reduces the fuel economy of your car — 2% per every additional 100 pounds — so you will need a car or truck that can handle its extra weight.
What about insurance?
Insurance works differently for tiny homes with permanent foundations and for PMRVs.
Insurance for Homes with Permanent Foundations
You won’t have to insure your tiny home if you don’t want to. You aren’t legally required to if you finance it with a personal loan, even if it is a permanent residential structure.
If you want home insurance, you can get it through traditional financial institutions if the home is NOAH certified. NOAH is a specialized tiny house safety and regulation standard inspection service that ensures tiny houses follow federal guidelines.
This certification is not a guarantee that your lending institution will insure your small-scale residence, but it increases your chances if your institution offers tiny housing insurance. NOAH only certifies homes with permanent foundations, and will not certify PMRVs. You can buy pre-built homes with NOAH certification, or you can build your own, and get it inspected and certified for $1,950.
If you want insurance but don’t want to shell out for NOAH certification, you can insure with MAC Insurance, an Oregon-based company that works nationally to specifically insure tiny houses. You can expect to pay anywhere from $400 to $1,500 per year. Their coverage includes damage, theft, and personal injury. MAC will also insure PMRVs.
Insurance for the Road
If insuring with MAC doesn’t appeal to you, you can get RV insurance for your PMRV. You’re limited in the number of financial institutions that will cover you if you’re living in one full-time, but if it is RVIA-certified you can get “full timer’s” liability insurance through insurers like Progressive, the Good Sam Insurance Agency, Overland Insurance Services, and others. These plans will cover you whether you’re parked or you’re on the go. Shop around for the plan that is right for you.
What about taxes?
You’ll still have to pay property taxes on your tiny house, but it will be much less than a traditional residence. Research your state laws to get an idea of what you might pay. If your home moves, you may have to pay personal property taxes depending on where you live.
Remember, PMRVs are considered vehicles, so you’ll need to get a license plate for yours and you may need to pay an RV tax if your state levies these. However, if you qualify as a full-time RVer, you may be able to get a tax deduction from the interest payments of any loan you used to finance your PMRV. You could even deduct any personal property taxes you paid. Research the tax deductions you might qualify for to get the most out of your new life.
Will it be too hard?
Absolutely not. It may sound like a lot to deal with, but keep in mind that whether you’re deciding to rent an apartment, buy a traditional house, or live in a tiny home, there are always logistics to consider.
Photo courtesy of Stephanie Renee Cluff via Unsplash.
Just remember it’s possible (thousands upon thousands have already done it), and that the more you know now, the more prepared you’ll be when the time comes to take the plunge into tiny home living.