Indulge me in a moment of transparency.
I am no financier. I not an investment professional or broker of any sort. As a matter of fact I have lived much of my adult life teetering between financial crisis and debt-free liberty. There has rarely been a middle ground. Along the way though I have picked up a few ideas and seen a few strategies work better than others. What I am talking about now though is much larger than just an impulse buy on Black Friday. I am talking about financing your tiny house. Many tiny house enthusiasts are so because of the appeal of living free of a mortgage or overwhelming housing debt. Truth of the matter is though, the expense of a tiny house (which now seems to hover at $35,000 or more) is a lofty endeavor for most. Financing of some sort is a seeming necessity. But how? How can one gain financing for a non-traditional house?
SELF-FINANCING. I would say the best option for building or buying a tiny house is to pay for it yourself; out of pocket. It is clearly the method that will help you achieve financial independence fastest. With it you don’t have to be concerned with interest rates, escrow and finance fees, etc. More importantly, it keeps you out of debt. Of course this is the hardest of finance options and not everyone has thousands of dollars sitting about waiting to be spent on a tiny house.
FRIENDS AND FAMILY. We have all borrowed money from a friend at some point. Most of us have ever borrowed money (sometimes significant amounts) from immediate family members. It is a viable option in most situations. This method can be a sensitive one though as it puts the almighty dollar at the center of a relationship. If this option is feasible an agreement that suits both parties should be reached so as not to over-extend either. Greg Parham of Rocky Mountain Tiny Houses suggests agreeing on a interest rate between 8% and 10%, to ensure that the friend or family member gets a return on their investment, but also so the buyer doesn’t end up house poor anyway.
SIGNATURE LOAN. This is not a sure bet at all. A signature loan is an unsecured personal loan. It’s not secured by the equity in a home (such as in a home equity loan) or by some other personal property or asset (such as a car loan). Signature loans can be for as little as $500 or as much as $25,000, depending on the type of lending institution. The primary problem is that signature loans come with shorter repayment timeframes and are typically not enough to pay for the tiny houses being built today. It is possible though and traditionally credit unions and local banks offer higher loan amounts.
RV LOAN. It should first be noted that RV loans are only available for tiny houses if the home is on a mobile platform and certified by the Recreational Vehicle Industry Association, or RVIA. This method of funding is not perfect though. RV loans are not designed for primary or full-time residences and they are akin to more traditional home or auto loans. They require steady income, good credit, and sometimes a legal address of a primary residence. RV loans also come with high interest rates (6.89% at time of print) and taxes. They also require a significant down payment. One of the more popular RV loan programs is Lightstream through SunTrust.
COMPARATIVE TERMS. Within the past two years sites such as TinyHouseLoans.com and Tiny House Lending have come about that essentially match up a borrower with a third-party lender, based on needs and conditions. This is an interesting option because the aforementioned sites take extra care in propping up third-party lenders that are genuinely interested in the modern tiny house movement and want happy clients as opposed to just turning a profit off loan conditions.
Financing a tiny house is not a cut and dried scenario. It is not one size fits all. Based on current financial obligations, credit ratings, cost of house, etc, a loan can be easily obtained or a loan can be downright impossible. Before even seeking financing though considerations should be made for what type of tiny house you want to purchase. Do you want to build your own? Do you want to have a tiny house on a trailer or are you more interested in a foundation? Have you contacted a builder and do you know the exact price for the build?
What about you? Are you currently living in a tiny house? Did you seek a financing option? Are you currently seeking financing? Share your story in the comments below.