It's finally happening: you're ready and excited to buy a new or used tiny home! You've spent months or years dreaming and planning and you're ready to purchase a tiny house to call your own.
Once you've done your research and decided to live the tiny house lifestyle of your dreams, it's time to figure out what you can afford. Tiny homes don't necessarily come with a tiny price tag, so financing your tiny house on when is often an important next step for new buyers.
Not sure where to start? No problem! Check out our top 10 tips to help you prepare for financing and paying for your new small home.
Increasing your credit score is one of the most important steps to take before buying a new home. Having a good credit history is a primary factor that lenders consider when you apply for home financing.
The majority of people get a loan to cover the purchase price of their tiny home, the cost of building their own house, or both. The more debt you have from other loans, such as your student loans, the more money you have to invest in your home. Reduce your student loan payments by renegotiating repayment terms with your creditors. While there are different types of loans that may be right for your needs, every loan application will check your credit score to determine whether you qualify for a loan.
Your credit score determines whether you get approved for a loan and what the interest rate on your loan will be. Often, the higher your credit score is, the lower your interest rate will be. A low-interest rate means that you will pay less over the life of the loan.
Before you apply for a loan, request a copy of your credit report to ensure everything is accurate.
Finding the home of your dreams can be tough, which is why some tiny home buyers choose to build their ideal home instead.
While you may need to wait a bit longer for move-in day, a reputable builder can help you create a custom house that's right on budget. Besides the budget advantage, you will also have the liberty to build and design your entire house according to your own preferences, be it selecting the floor material, building your kitchen, or choosing tiles for your bathroom. Designing a home precisely to your preferences will also help you save on renovation costs in the long run.
If you consider yourself especially handy, a down payment for a prebuilt tiny home may cover the costs of building a tiny home yourself! Many tiny homeowners design their own floor plans and take on building their home themselves, especially if they're considering less conventional home types like shipping containers. A mini-house kit can help you get started on building your perfect tiny house.
We highly recommend a building consultation to determine whether building or buying is best for your budget.
While the purchase price may be right for your tiny house, there is often an additional expense for the land your home occupies.
If you intend to buy land, don't forget to include that in your budget so your loan covers that cost. Owning land also comes with property tax payments, so that may impact your choice in whether you buy or lease your land.
Keep in mind that some states have zoning regulations or housing codes that prohibit tiny houses, so check your local laws before you buy a tiny home.
If your home is on wheels and you intend to travel, renting a lot in an RV park or leasing space may make more sense for you. This may make your land costs more unpredictable, so be sure to research rent costs anywhere you plan to travel.
Your utility costs may vary dramatically depending on the type of tiny home you buy.
If you lease land, your utility hookups are often charged above and beyond your rent payment. If you own land, you will still need to pay for utilities, but you may have more customization options—like adding solar panels—to help you live off the grid and pay less for utilities.
Since many tiny homes are on wheels, you may also need to consider towing expenses as well as gas, registration, and licenses. These monthly expenses add up quickly, so make sure to consider whether parking, towing, or driving your tiny home is the best option for your budget.
Once you've determined what you can afford, it's time to go to the bank!
Many lenders are hesitant to finance tiny homes with a traditional mortgage, especially if your new home is on wheels. The cost of tiny homes can vary widely, so there is no ideal funding option for all tiny homes. However, there are many types of loans that may be more appropriate for your new house. One option for tiny home financing is through SoFi, a personal finance company that provides mortgages for tiny homes. SoFi offers competitive loan terms and flexible repayment options, making it a great choice for financing your dream tiny home.
First, see if you qualify for an RV loan. While they do have very specific requirements, RV loans are the closest option to a traditional mortgage, offering longer payment periods and lower interest rates than other loan options.
If you do not qualify for an RV loan, you may consider an unsecured personal loan. While a personal loan may cover more types of tiny houses, these types of loans often have higher interest rates and shorter loan terms. They also usually require a higher credit score.
If you're creating a custom home or buying a new prebuilt tiny home, finding a reputable builder can save you lots of time figuring out your financing plan.
Your builder may offer financing options that make building your home more feasible than buying a used home. For example, your builder may be able to offer you a line of payment on the costs of the build. Since building a tiny home takes longer than purchasing a prebuilt one outright, you can pay your builder's invoices as they build instead of applying for a large loan.
Tiny home builders also may have partnerships with banks or provide their own lending services to help you finance your home. If you are considering buying a home directly from the manufacturer, don't forget to ask them about their in-house financing options.
Creating a payment plan with your builder can ultimately save you money on interest costs, closing fees, and more.
If you don't qualify for a loan or other payment plan, other tiny homeowners may be willing to help you buy the home of your dreams!
The tiny living community is a tight network. There are options available for peer-to-peer lending that may be more affordable or accessible than a traditional loan. Joining tiny home Facebook communities or local groups can help you find potential investors.
Additionally, there are lending associations that specifically extend loans to people buying tiny homes. Since these lenders are not backed by banks, they may not be able to provide loans large enough to cover the total cost of your new home. However, they can help you start building a new home or buy a tiny home in a lower price range.
While you were saving for your down payment, you may not have considered the other costs that go into financing your new tiny home. If other payment options are unavailable or don't cover your expenses, ask your friends and family for help.
Even if you've discovered your credit score or debt-to-income ratio isn't where they need to be to qualify for a loan, your friends or family may be able to help by cosigning. By cosigning on your loan, your co-signer takes on the responsibility of the loan if you stop making payments. If your co-signer has good credit, the lender may even offer you a lower interest rate on your loan.
If you only need a little more money to make your dream home a reality, consider crowdfunding. Creating a GoFundMe or Indiegogo campaign and sharing it with your friends and family can allow multiple people to support you with a smaller dollar amount, rather than asking one family member for a large loan.
If you have the credit limit available, you may have the option to put your tiny home costs on a credit card.
Some tiny homes are inexpensive enough that putting the entire amount on a credit card is possible. However, using a credit card is usually a final option since your credit card has a much higher interest rate than a loan.
If you anticipate being able to pay off the full amount within a year or two, consider applying for a credit card with no interest for an extended period of time. No interest payments can save you money in the long run, but only if you are able to pay off your credit card within that time period. Otherwise, you may end up spending more than you intended when interest is added.
If you've found a builder with a style you love, you may benefit by saving up your cash before your purchase.
Finding a great tiny home builder or building company means you don't have to wait for your perfect used tiny home to go on the market. You can buy your home when it's more financially feasible, knowing exactly how much it will cost and what your options are to buy it.
While it may take longer to purchase your home with a larger cash payment, you can significantly save money in the long run on added fees. Take the time to improve your credit score and strengthen your loan application before applying again.
While there are many ways to finance your new home, there is only one way that's a perfect fit for your budget. Finding appropriate financing your tiny home can be tricky, but we're here to help.
Schedule a consultation with us today and we'll help you determine whether buying or building your tiny home is right for you!
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