Financing

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 $40,000 to build, according to iTRaC. Already-built models are typically available for less than $80,000.

Unless you have the cash on hand for your tiny home, you might consider borrowing. Your options include:

  1. 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.

  2. 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.

  3. 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.

  4. 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.”

7 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.

1.Light Stream

2. Liberty Bank of Utah

3. Upstart

  • Upstart personal loans come with an APR range of 5.59% to 35.99%

  • Borrow between $1,000 and $50,000

  • Repayment terms of 36 or 60 months

  • Qualify with a minimum FICO credit score of 620 or better

  • Your APR will be determined in part by factors such as your education and career

  • No prepayment penalties if you plan on paying down your debt early

  • Origination fee of up to 8.00% of your loan balance

VISIT UPSTART

4. LendingClub

  • LendingClub personal loans come with an APR range of 6.95% to 35.89%

  • Borrow between $1,000 and $40,000

  • Repayment terms of 36 or 60 months

  • Minimum FICO credit score not specified

  • Compare offers using the peer-to-peer lending platform

  • No prepayment penalties if you plan on paying down your debt early

  • Origination fee of 1.00% - 6.00% of your loan balance

VISIT LENDINGCLUB

5. Citizens Bank (RI)

  • Citizens Bank personal loans come with an APR range of 6.79% to 20.89%

  • Borrow between $5,000 and $50,000

  • Repayment terms of 36 to 84 months

  • Minimum FICO credit score not specified

  • No prepayment penalties if you plan on paying down your debt early

  • No origination or administrative fees

VISIT CITIZENS BANK

6. FreedomPlus

  • FreedomPlus personal loans come with an APR range of 5.99% to 29.99%

  • Borrow between $7,500 and $40,000

  • Repayment terms of 24 to 60 months

  • Minimum FICO credit score varies

  • No prepayment penalties if you plan on paying down your debt early

  • Origination fee of 0.00% - 5.00% of your loan balance

VISIT FREEDOMPLUS

7. SoFi

  • SoFi personal loans come with an APR range of 5.47% to 17.67%

  • Borrow between $5,000 and $100,000

  • Repayment terms of 24 to 84 months

  • No prepayment penalties if you plan on paying down your debt early

  • No origination or administrative fees

  • Late fee forgiveness after you make three consecutive on-time payments

  • Offers the ability to pause your repayment if you lose your job

VISIT SOFI

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.