Tiny houses are springing up left and right throughout the world. They’re much more affordable than traditional houses and are still able to provide high-quality amenities for people of all ages. However, what if you don’t have the funds to purchase a tiny house outright. Then what?
Can Tiny Houses be Financed?
You can finance a tiny home through a lender that works with the building company. Most of them are partnered up together to make the transition easier for all parties involved. You can also take out a bank loan to help pay for part of the house.
Throughout this article, you’ll also learn:
- Step-by-step instructions to finance a tiny home
- How you can find a financer
- Why you might want to consider it, even if you have the money upfront
How to Finance a Tiny House?
Financing a tiny house is much easier than you might think. It’s very similar to buying a traditional house in the sense that the building company works hand in hand with banks and lenders to help potential buyers land a new home.
You can expedite the process by buying most of the house with a down payment, but it’s not always necessary. Rather than losing all of your money from the initial costs, you can talk to the lending company about your options. There are also numerous banks that would love to help you with a loan.
Before you request financial assistance for a tiny home, you need to make sure that you have good standings in the following categories:
- Your credit score is very important since it’s a direct number that indicates how responsible you are with financial endeavors. If you have a low or developing credit score, lenders are much less likely to help you out. On the other hand, anything over 700 will give you a higher possibility of qualifying for a loan.
- Your personal combined income is another factor that you should keep in mind. If you’re buying the house by yourself, this number is simply the amount of money you make yearly. If you have a spouse, then your income is combined to determine the total amount of money you make.
- Your debt to income ratio is also very important since it tells lenders if you’ll have enough money left over to pay for the tiny house. If you have big car payments, RV payments and a house payment on top of all of that then your debt to income ratio will be poor unless you make a lot of money. If you’re free of such commitments, lenders will be much more attracted to offering you a loan, especially if you have a low income.
- Your credit history is often overlooked as well. People usually think that a high credit score guarantees them anything that they want, especially if they have a good income. However, you need to have a credit history that’s stretched through multiple credit lines to increase both the quality of the loan as well as your chances of qualifying for such a loan.
Steps to Take and Places to Go to Finance a Tiny Home
Now that you’ve seen all of the requirements to get a tiny home financed, it’s time to figure out the steps that you need to take and where you need to go to secure a loan.
Get all of your credit and income paperwork ready, then follow the step-by-step instructions below.
- Figure out if you’re going to get a loan through a personal lender, the lenders who work with the building company, or another service. All of them are similar in the sense that they offer you money in exchange for interest over the course of several years. However, some have better rates and commitments than others.
- Consider going to your credit union if you’re part of one. If you’re able to have built a relationship with a credit union with credit card payments for several years, your chances of getting a loan will be increased from that relationship.
- Some tiny house building companies have their own private lending companies that are a branch of the same brand. You can ask about private lenders when you talk to the building company. As with the other two steps, this can be done online or through a phone call.
- Secure a plot of land or a space in your own backyard. If you don’t have a place to put the tiny home, many lenders won’t even consider your request. Not having a place to park the tiny house is often a warning sign that you potentially could decide to stop paying for it since you’re not getting any use out of the home.
- Once you decide which route you’re going, you can get your paperwork submitted for approval. After you’ve been given the loan, you should immediately secure insurance for your tiny home. Many states require you to have some sort of homeowner’s insurance, while some people even use RV insurance for houses on wheels.
Why Finance a Tiny House?
If you already have the money ready to pay for the home, you might wonder why financing should even be in the question. After all, you’d avoid interest, monthly payments, and you’d actually own the property rather than the lending company. However, there are actually quite a few benefits of financing a tiny house.
For example, paying off a loan on time or beforehand is an excellent way to boost your credit score. Since it’s considered a home mortgage in most cases, you’ll have an incredible credit history once you’ve paid it off. The combination of good history and score is as positive of a benefit that you could ask for.
Another reason that you might want to think about financing is that you could use the extra money for renovations. Even if the house is customized before you get it, you may be able to add a swimming pool, lawn and garden, and all sorts of other amenities around the exterior. Who knows? Maybe you can use the money to buy a bigger plot of land!
If you want to rent out the tiny house on sites such as Airbnb, you could charge much more money than the monthly payment. You’ll end up making an incredible profit without having to wait a year or two until the income matches what you’ve spent by buying the house upfront.
Example:
The tiny house costs $2,000 per month, and you rent it out for $100 per night. Assuming you get a booking every night, you’ll end up making $3,000 per month. That’s a huge profit, especially if you can keep the upkeep low.
In short, it’s always a better idea to examine all of the options before you jump right into buying a tiny house completely. Whether you’re chasing a better credit score and history, or you want to make a monthly profit, financing a tiny house has countless benefits.
Conclusion
If you want to finance a tiny home, all you have to do is find a lending company that will agree to your terms. Assuming that you have a good credit score and credit history, most companies will be interested in offering you a loan.
Remember that you should do your own personal research to see if the monthly payments are appropriate for you. Tiny houses will be around for the foreseeable future, so there’s no need to rush and put yourself in a bad situation. Work on your credit score, save up some money and then find the tiny house of your dreams.