One of the allures of tiny houses and tiny house living is the idea of being able to live within your means. No loans, no payments, just free and clear. For a lot of folks paying cash for a tiny house is out of reach. For them, and perhaps for you, financing your purchase makes sense. But how do you do it? Here are a few of the more popular methods:
- Borrow from Yourself – Some 401k plans allow you to borrow from yourself and repay yourself with interest. While this may not be ideal, it can be better than going too deep into debt and taking high interest loans.
- The Friends and Family Plan – “Mom, Dad, just how bad do you want me to move out on my own?” Ok, that may not be the tact to take, but your family may be a good source for a loan and they may even charge you less interest than a bank. If you’re going to borrow from your friends its a good idea to agree to terms up front. A tiny house is important, but it’s not worth losing a life-long friendship over.
- Bank – Most conventional banks and mortgage companies won’t give loans on tiny houses because they usually don’t meet minimum loan amounts. However some newer, internet-based banks and loan companies like Lightstream will issue loans on tiny houses. Just remember, if your loan is unsecured, it’s quite likely that your interest rates will be higher.
- Credit Unions – Credit Unions have a reputation for being more liberal with giving loans. For example, a lot of credit unions will issue a loan for a vehicle with high mileage when traditional banks won’t. Similarly, some credit unions will make loans for tiny houses that are too small for a typical mortgage.
- Crowdsourcing – Crowdfunding sites like Gofundme are a great place to raise money for projects. Typically charity projects do the best there, but the donors there will give for someone who puts together a compelling story.
- Manufacturer Loans – Some tiny house builders offer loans for folks who qualify. It’s worthwhile to search for tiny house builders who offer such financing, because usually their rates are fairly competitive.
- RV Loan – Some destination homes and tiny houses are classified as RVs specifically so they can qualify for RV loans and insurance. Be sure to ask your dealer about financing options.
- Rent to Own and Land Contracts – Some private sellers are willing to allow you to rent to own a unit or even purchase with land on a land contract. These can work well for buyers with less than perfect credit, but it’s important to use caution because unscrupulous sellers may try to prey upon buyers who are in a difficult situation by overcharging or jacking up rates.
- Credit cards – This is probably a last resort. Credit card companies charge very high rates for borrowed money. This should primarily be used by people who are building their own tiny house and buying materials over time.
There are a lot of ways to finance your tiny home, but the best solution for most is to save and pay cash. Even if you do take a loan, a tiny house may be far more economical than renting or buying a traditional house. If you have to go into debt to buy your tiny house, be sure to do your homework and shop for the best rate. Do you know of other ways to finance a tiny house purchase? We’d love to hear from you, so please leave a comment or drop us a line on our Facebook page.