FHA covers tiny homes larger than 400 sq. ft. on a permanent foundation that meet all state/local building code standards. To get approved for an FHA loan, you need a credit score of 500 to 580, no recent bankruptcy in 3 years, and a Debt-to-Income Ratio of less than 43%. 

Tiny houses are generally small houses under 600 square feet. People build them on permanent foundations or trailers. Funding a tiny house can be challenging, so people opt for a loan. Still, securing a traditional mortgage can be difficult, and people opt for other financial options. 

But is it possible to get a traditional mortgage like FHA to fund a tiny house?

This article has the answer!

You will find out the FHA loan requirements for tiny homes, the loan application process, and the loan limit. You will also learn other financial options for funding your tiny house.

Let's dive in!

FHA loan requirements for tiny homes

FHA loan requirements for tiny homes involve square footage, foundation, and state or local building code requirements. 

Let's look at each requirement in detail:

The tiny house must not be smaller than 400 square feet.

FHA loan requirements state that a manufactured/mobile home bought with an FHA mortgage must not be less than 400 square feet. However, there is no minimum square footage for other types of homes. 

The loan only requires that your tiny house is marketable in your location. The house should also have enough space for sleeping, living, cooking, dining, and sanitary functions. 

The tiny house must be attached to a permanent foundation

All properties - tiny or not - that are not on or won't be attached to a permanent foundation as a requirement for FHA don't get the FHA loan approved. According to law, houses on wheels are not classified as real property or real estate. And, to get an FHA mortgage loan, your house must be real property or real estate. 

As such, R.V.s don't qualify for FHA loans because you can’t attach them to a permanent foundation due to the design. Also, houseboats cant qualify for FHA. 

The house must meet all state/local building code standards

FHA requires a home to meet minimum safety standards for lead paint, good repair, and system upkeep, including plumbing, water heater, etc. 

The FHA home loan book is silent or has minimum input on state and local building laws. However, local building codes apply for FHA requirements. If the FHA requirements have not all been met, or if your tiny house doesn't meet all state or local laws, you will need to make rectifications. 

Follow all FHA loan requirement standards

To qualify for an FHA loan, you need to meet the following standards:

• Credit score- FHA home requirements require you to have a credit score of 500 to 580, but most lenders will need at least 580. 
• Credit history- You aren't allowed 30-day late payment within the past 12 months. Also, you shouldn't have a history of bankruptcy and foreclosure in the past three years.
• Down payment- With a credit score higher than 580, FHA needs you to make a minimum down payment of 3.5%. With a 500-579 credit score, you need a minimum down payment of 10%. 
• DTI (Debt-to-income ratio)- FHA loans require a DTI of less than 43%, but you can have a higher DTO with large cash reserves or exceptional credit scores. DTI ratio of the gross monthly income percentage goes towards monthly debts such as credit cards and student loans. The law typically allows you to spend up to 31% of your gross monthly income on the house payment. 
• Loan-to-value ratio (LTV)- LTV compares the loan amount to your tiny house's market value. If you need to make a 3.5% down payment, your LTV needs to be 96.5% or lower. 
• Closing cost: You need to pay third-party and lender fees such as underwriting or origination fees. Depending on your location, the closing cost can range between 2% to 5% of the loan amount. You need to budget the closing cost and the down payment together. 

Is the FHA loan application process different for a tiny house?

No, the FHA loan application process isn't different for a tiny house. The Federal Housing Administration insures FHA loans; hence you get low down payments, lower rates, and looser credit requirements. However, the FHA agency doesn't lend you money. You get the FHA loan from a private lender.  

Look at the steps you need to follow to get an FHA loan for your Tiny House.

1. Look for a lender

The first part of the process is getting an FHA-approved lender. Finding an approved lender isn't difficult since most banks and mortgage companies offer FHA loans. 

You can get an FHA loan from the following lenders:

• Banks
• Mortgage brokers
• Credit unions 
• Online lenders 

The best lender depends on you and a few factors such as credit score or whether you prefer online lenders or person-to-person interactions. A local lender is the best choice if you want to interact with your lender. 

Mortgage rates and terms are different from one lender to another. It is best to contact many lenders to compare offers and see who has the best deal for you. You can request quotes from at least three lenders to know who has the lowest fees and interest rates. 

Lenders will typically ask to check your credit before giving you a pre-approval or rate information. 

2. Apply for an FHA loan

The next step is to apply for an FHA loan. Some lenders connect you to a loan officer to complete the application over the phone or email, but most allow online applications. 

Ensure you submit all the mortgage loan applications within 45 days for your credit score to remain intact. Your credit report will read a single credit inquiry. 

3. Provide basic details and necessary documents

Your lender will need your tiny house details or personal information to start on your mortgage application. At first, you need to provide the following information:

• Full names
• Social security number
• A State-approved I.D. or Driver's license copy
• Employment history
• Income details
• Tiny house address
• Purchase information of the tiny house
• Down payment amount

After providing the basic details, the lender requires supporting documents to verify debts, income, and savings. Here is a list of documents the lender will need from you: 

• Past two years tax returns
• Bank statements from the past 60 days
• Past two years W-2s 
• Financial statements of investment accounts, retirement accounts, or other assets
• Social security, disability income, or evidence of other sources of income
• Recent pay stubs
• You need to provide a year-to-date loss and profit statement if you are self-employed
• If employed, provide the name and address of employers from the past two years. 

4. Compare loan estimates 

The lender then gives you a loan estimate three business days after your application. The Loan Estimate (L.E.) gives you details on the estimated interest rate, monthly mortgage payments, and closing costs upfront. L.E. is the standard form that all lenders use to keep the loan application process transparent. 

The L.E. also gives you details on the loan term and loan type to compare mortgage offers equally. Ensure that the FHA loan quotes the same loan term, loan type, and loan amount. To get the best deal, you can then compare annual percentage rates (APR), interest rates, and upfront fees. 

How to apply for an FHA loan: Process and requirements

How much money can you borrow with an FHA loan for a tiny house?

FHA loan limits depend on your county. FHA’s lowest and highest mortgage limits for a one-unit property in C.Y. 2022 are $420,680 and $970,800. The loan limit is $420,680 for most area codes but can be higher depending on the housing market. 

According to the U.S. Department of Housing and Urban Development, the loan limit applies from January 1, 2022, to December 31, 2022. You can look up the FHA mortgage limit for your location on the FHA mortgage limit page. 

What are other ways to fund your tiny house? 

1. Traditional Mortgages 

If you are building a tiny home attached to the ground, the best loan option is a traditional mortgage. The loan can also come in handy if you want to add an accessory dwelling unit to your home. 

There are other types of conventional mortgages to choose from other than FHA, including V.A. and USDA.

• V.A. loans: The U.S. Department of Veterans Affairs (V.A.) can give eligible military borrowers a V.A. loan for a tiny home built on a foundation. Additionally, the tiny home has to be worth more than $100,000. Most tiny homes on foundation cost around $75,000, which disqualifies many applicants from the V.A. loan. 
• USDA loans: The U.S. Department of Agriculture (USDA) offers eligible applicants funds to build, rehabilitate, relocate, or improve their living place in a suitable rural area. 

2. Home equity loans

Home equity loans are outstanding if you look to make a tiny home your second home by borrowing against your existing mortgage. 

Home equity loans have low rates and extended repayment terms, including ten years or more, hence lower monthly payments. However, you need home equity to qualify, which means your home can be seized if you don't make payments. 

Home equity is best for purchasing tiny houses that generate income through rentals. You take equity from your home, so you don't know if adding a tiny home will boost any value. 

Home equity loans come with limits. Lenders only allow you to take up to your combined LTV (Loan-to-value) ratio. The LTV here is the dept between your home equity loan and first mortgage divided by the market value of your home. 

Terms of financing depend on whether you take a home equity or HELOC (Home Equity Line OF Credit). The home equity loan gives you five to thirty years' fixed interest rates and repayment terms. With a HELOC, you get variable interest and a draw period to pay the balance. 

3. R.V. loans

If your tiny home is mobile, you can finance it with an R.V. loan. To get an R.V. loan, you need to qualify for the following:

The Recreation Vehicle Industry Association (RVIA) must deem your tiny home roadworthy.

Your tiny home must comply with the U.S. Department of Transportation National Highway Traffic Safety Administration standards.

Some lenders require your tiny home to be a primary or permanent residence.

You can get an R.V. loan through multiple lenders such as banks, online lenders, and credit unions. Credit unions and significant banks can give up to 20-year terms and small monthly payments. 

The R.V. loan offers longer and more manageable terms than personal loans, and your tiny house doesn't need to be on a permanent foundation. 

4. Personal loan 

Personal loans are other options to finance your tiny house, but the loan repayment terms are shorter than mortgages. Income and credit scores determine whether you are eligible for a personal loan.  

The yearly percentage rates for personal loans range from 6% to 36%. If you have excellent credit, 720 and above, you qualify for lower rates. 

Personal loans don't need collateral since they are unsecured, so you don't lose any assets if you don't repay them. Instead, your credit score suffers, which could affect you when taking future loans. 

• Bank personal loans- If you have a good relationship with your local bank, you can get a personal loan. Some bank loans have the same rates as online lenders, while others offer lower rates or discounts to prior customers. 
• Credit union personal loans- Some credit unions offer personal loans for tiny houses. A great relationship with the credit union and meeting all the joining requirements increases your chances of securing the loan.

5. Loan via a tiny house contractor or builder

A lender that partners with tiny house builders can finance your tiny house. This loan can be secured by your tiny home or unsecured (credit score). The perks of this method are that you have low starting rates, generally under 10%, and long loan terms(10-20 years). 

However, you might need to pay a down payment of 20% of the buying price. Also, if your loan is secured, you can lose your tiny home on payment failure. 

Go Tiny with Tiny House!

FHA requirements for a tiny house require the house to be more than 400 square feet. Your tiny house should also be on a permanent foundation and follow all state/local building code standards. To get approved, you also need to have the following:

• DTI of less than 43%
• A credit score of 500-580
• Make a minimum down payment of 3.5% with 580 credit score/ 10% with 500-579 credit score.

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