Alternative Lenders for Tiny House Financing

We here at Rise have recently conducted several tiny home features where we asked tiny home homeowners to share with us not only their beautiful homes but some of the challenges and unexpected benefits that come with tiny home living. The majority of these homeowners admitted that finding financing alternatives to pay for their tiny homes was a challenge that they didn’t plan for.  So to address that problem, we did a little research. Below, we offer a complete rundown of alternative lending agencies and institutions and unconventional financing options for people interested in transitioning into a tiny home. 

A Look at the Numbers

One of the main draws of living in a tiny home is the financial incentive. The average mortgage debt that homeowners across the country face has risen to almost $200,000. According to a 2017 article in Forbes Magazine, at least five percent of all homeowners are currently behind their mortgage payments. Tiny homes can cost as little as $20,000 for homes that owners build or for tiny home shells that the homeowner then finishes. More typically, however, a complete finished tiny house will probably cost you somewhere in the range of $60,000 to $100,000. 

Because of the lower cost, an estimated 68 percent of tiny home homeowners have had the financial stability to purchase their home outright—compared to about 30 percent of other homeowners. While avoiding a mortgage is much easier with a home that costs $35,000 than a home that costs $350,000, not everyone will be able to purchase a tiny home without financing options. Since tiny homes are beautiful to young people and first-time homeowners who most likely do not have a large amount of savings built up (and access to significant weekly paychecks to cover monthly operating costs), finding financing alternatives is crucial. 

Why Banks Might Deny a Mortgage for a Tiny Home

Most traditional banks are somewhat hesitant to offer mortgages for tiny homes. From their perspective, tiny homes often go against zoning ordinances that stipulate minimum square footage for homes. Locating a tiny home on a friend´s land or in a tiny house community is seen by the bank to lower the equity of the home, which banks use as a reason to deny the request for financing. 

Even if your tiny home follows local zoning, ordinances, and other building regulations, traditional banks might deny your request for a mortgage because of the relatively small loan size. Banks have built-in fixed costs for the mortgage packages they offer, and smaller financing amounts are often unattractive to the banks—and they can be expensive to the homeowner. Banks might deny applications for tiny house mortgages, claiming that a tiny home is not real estate. This is especially true for a tiny house of wheels that many banks will consider personal property instead of real estate. 

Where to Look for Alternative Financing

If you have a hard time finding financing options at regular banks, a local credit union is often a good place to start. Credit unions are almost always local entities that have a connection to the local community. In many cases, this will make them much more flexible when determining what they can and cannot finance. Credit unions are often the only financing alternative open to homeowners looking to finance energy efficiency upgrades to their homes. People interested in financing a tiny home purchase would do well to approach their credit union. 

Accessory dwelling units (ADUs) expand across the country as people are looking for affordable housing alternatives. In many metropolitan areas across the country, legislation is in place to allow homeowners to build an ADU on their property to rent it out. If you know of someone who has property and will let you build or move a tiny home on their land, other financing alternatives are available. 

An FHA Title I Loan is reserved explicitly for property improvement. If you don’t already own a home, this type of loan isn’t for you. However, you could potentially borrow up to $25,000 to build a tiny house that you move into your backyard. One of the purposes of a Title I Loan is for site improvement, and you can bill your tiny home as an ADU addition onto an existing structure. Title I loans usually offer low-interest rates and up to 20-year terms. Home equity loans could also potentially be used to build a tiny home for existing homeowners. 

Another alternative for tiny house financing is an RV loan. This, of course, only works if you plan on building a tiny house on wheels and the builder is RVIA certified. RV loans generally have slightly higher interest rates of around 6.5 percent (check with your bank for the latest rate), and the loan terms are almost always much shorter than a traditional mortgage. 

Many tiny house builders are beginning to partner with lending companies offering to finance the homes that they build and market. MitchCraft Tiny Homes, Tiny Heirloom Tiny Homes, and Wind River Tiny Homes, for example, have partnered with KFG Financial to offer financing for their homes. KFG Financial offers fixed-rate mortgages between 6 and 15 percent and will give you a credit decision within 24 hours of submitting your application. They also offer loan terms between 5 and 25 years. 

Other Alternative, Online Lenders for Tiny Homes 

Today, several online lenders offer tiny home financing. While some online lending programs have gained a notorious reputation for high interest rates, some other reputable lenders and websites have specifically tailored financing options for tiny homes.  

SoFi

Social Finance, or SoFi, is a reputable online lender offering mortgages for tiny homes. Their mortgages only require 10 percent down, and they are free of application, origination, or other lender fees. You can apply for a SoFi mortgage for your tiny home if you live in one of the following states: Alabama, Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Maryland, Minnesota, Montana, New Jersey, North Carolina, North Dakota, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, Washington, D.C., Wisconsin, or Wyoming. (Check the website for updates.)

LightStream

LightStream is another alternative online lender that explicitly offers a program directed towards people interested in tiny homes. Their tiny home and park model financing starts as low as 4.29 percent. They offer financing for up to $100,000 for terms anywhere between 24 and 84 months. They also provide almost paperless loans that can be approved on the same day. 

Other Peer to Peer (P2P) Lending Platforms

Peer-to-peer lending programs are another financing alternative worth exploring. Lending Club, to name just one example, offers personal loans up to $40,000. While you will need to have a good credit score to get a decent interest rate, these platforms generally let you choose between several different offers so that you can choose the loan that best fits your financial situation. 

Bottom Line

If you are set on buying or building a tiny home and don’t think you’ll get approval for a traditional bank mortgage, don’t let that discourage you. There are other types of financing available, and they are worth checking out.

Article by:

Tobias Roberts

Tobias runs an agroecology farm and a natural building collective in the mountains of El Salvador. He specializes in earthen construction methods and uses permaculture design methods to integrate structures into the sustainability of the landscape.