They’re economical, environmentally friendly, energy efficient, and they encourage you to stick to a minimalist lifestyle – it’s no wonder you may be considering joining the tiny house movement.
Financing is likely on your cards to help bring your dream home to life. Here’s a comprehensive list of the various options you have on the table to help you finance your tiny home.
7 tiny house financing options
If you’re buying a standard sized home, a mortgage is the traditional route you’d take to help you with your milestone purchase. Tiny homes, on the other hand, don’t work in the same way, usually because tiny homes cost far less than their full-sized counterparts.
With this difference in mind, here are the most conventional options you have to help you build or buy your tiny house:
1. Unsecured personal loan
How it works
If you’re looking to buy a tiny house with a solid foundation or want to build your own RV, you might want to consider taking out an unsecured personal loan. A personal loan is provided as a lump sum which you’ll repay over the course of a few years. You can typically use these term loans for any legitimate purpose and don’t have to put your home up as collateral.
Benefits
Flexibility to use your funds, from buying a tiny home outright to purchasing a piece of land where your tiny house will go.
Long-term financing options of up to 10 years, which may mean lower monthly payments.
Quick turnaround on approvals and issuing your loan once you’ve qualified.
What to watch out for
Potential for high interest rates, especially if you have less-than-perfect credit.
Potential for extra charges, from origination fees, administrative fees, prepayment fees, late fees and other charges, which may drive up the cost of your loan.
Many tiny houses are on wheels. If that’s what you’re looking for, RV loans could help you with funding. Just like securing financing for a regular-sized vehicle, RV loans provide you with the funds to help you purchase a new or used recreational vehicle, including motor homes, travel trailers, toy haulers and campers.
Benefits
Can be provided via an unsecured or secured loan using your RV as collateral.
Long-term financing of up to 10 years, which may mean lower monthly payments.
Variety of options for providers, from online lenders, to banks, credit unions and RV dealerships.
What to watch out for
RVs can range in price from as low as $10,000 up to $150,000. You may not be able to secure enough financing to cover the entire cost of a high-end RV.
If you need to make renovations to your RV to bring it to your tiny house living standards, these upgrades may not be covered in your RV loan.
Potential for high interest rates, especially if you have less-than-perfect credit.
3. Personal line of credit
How it works
If you’re building your home, you might want to consider taking out a line of credit. It works almost like a credit card, giving you a specified credit limit to use how you like. While personal loans give you a lump sum of funding you need to repay within a fixed amount of time, a line of credit stays open as long as you keep up with payments. Once you repay what’s withdrawn, you can re-access the money. Access to a line of credit can prepare you for unexpected expenses that don’t factor into your initial calculations.
Benefits
No locked in terms. As long as you’re making repayments, your account stays open so you have access to cash any time you need it while only paying interest on the amount you withdraw.
What to watch out for
Your line of credit may not be enough to cover off the majority of your financing for your tiny home. However, it can be used to supplement your purchase or to withdraw funds as needed as you pay for renovations and other expenses.
4. Chattel mortgages
How it works
While your tiny home likely won’t be eligible for a traditional mortgage, you may still be able to qualify for a chattel mortgage. A chattel mortgage is a mortgage for movable personal property, unlike a regular home. These work more like car loans than mortgages; your lender will technically own your home until you finish paying off the loan.
They tend to have lower interest rates than personal loans and may have less strict eligibility criteria than other financing options.
Benefits
Chattel mortgages can be especially helpful if you park your tiny home on leased land or intend on moving frequently.
These niche mortgages typically come with shorter and more flexible repayment terms.
They also tend to have lower interest rates compared to personal loans and less strict eligibility requirements than other financing options.
What to watch out for
Because these are unique mortgages, they may be a harder loan product to find with major banks and online lenders.
These mortgages are limited to movable personal property.
5. Tiny house builder
How it works
When homebuyers purchase a traditional house, they often seek out financing through a lender that’s partnered with the homebuilder. In this same way, tiny house buyers can link up with a lender affiliated with the builder constructing their new property. Your builder may even recommend this option for financing your construction and offer incentives to take up their offer.
Benefits
Builder-recommended financing can come with low interest rates and long loan terms, similar to a conventional home mortgage.
Your builder may offer incentives, such as home upgrades or help with closing costs, to persuade you to work with their affiliated lender.
What to watch out for
Even with perks in hand, double check to make sure you’re happy with the loan’s terms and interest rates.
This option may require you to provide a down payment of up to 20%, similar to what’s needed for a conventional mortgage.
6. Home equity loans
How it works
If you already own a home and want to build or buy a second tiny house, you can leverage the equity you’ve built up in your first home to finance your next property purchase. Keep in mind, you’re using your home equity as collateral.
Benefits
With your home equity as collateral, you can secure low rates and long repayment terms, which may lead to lower monthly repayments.
Flexibility to use your home equity loan as needed, from buying your tiny home to covering off repairs, upgrades and other expenses.
What to watch out for
Your loan amount is determined by a home appraisal from your lending institution. Make sure your home is in tip-top shape before your appraisal so it’s garnering a fair market value.
You’re putting your home equity on the line to qualify, so you can lose your primary home if you can’t keep up with payments.
7. Home equity lines of credit
While home equity loans provide borrowers with a single lump sum of cash that’s repaid with set terms, a home equity line of credit (HELOC) allows homeowners access to funds as needed, just like a regular line of credit. Once again, you’re using your home equity to qualify for this account.
Benefits
HELOCs are flexible, open-ended accounts without set terms. Borrowers can take out cash from their HELOC on an ongoing basis and only need to pay what they use.
With your equity on the line, lenders will offer you lower interest rates on your HELOC.
What to watch out for
You’re putting your home equity on the line to qualify, so you can lose your primary home if you can’t keep up with payments.
HELOCs come with a variable interest rate, so when you take out cash from this account, your repayments may fluctuate depending on your lender’s prime rate.
Can a traditional mortgage lender finance a tiny house?
Not necessarily. You may need an unconventional form of financing for your unconventional home. For starters, it may be difficult to find mortgage lenders that market tiny house mortgages because they’re so niche. Most mortgages tend to come with minimum limits on how much you can borrow, with tiny houses being on the lower end of the price range. Other lenders may explicitly state that their home loans apply only to properties fixed on a solid foundation, which may exclude tiny houses that are designed to be portable.
With these limitations at hand, your best bet is to consider chattel mortgages, RV loans and personal loan products to finance your tiny house. It’s worth checking with your current lender though, to see if your tiny home fits the building code requirements to qualify as a conventional property
How to choose the right tiny home financing option
With tiny homes still being a novelty in Canada, make sure you do some comparison shopping with your financing options and take stock of what you need from your tiny house loan. Here are the key determining factors to consider:
Decide on what you need. Are you working with a tiny house builder to design the home of your dreams or are you buying an RV you plan on renovating? When you have your end goal in mind, it’ll be much easier to refine your list of financing options so you can zero in on chattel mortgages, RV loans, or working with your builder for financing as needed. Make sure the loan product you want provides enough to finance your purchase and any other related expenses.
Consider your priorities. Create your tiny home financing wishlist. Do you need the lowest interest rate possible, lengthy terms, or a large personal loan you may need to provide security on? Do you have home equity you’d like to put to use? After you’ve determined which loan best suits your needs, figure out your priorities.
Shop around for interest rates. Second to your priorities are annual percentage rates, or APRs, which will dictate how much you’ll spend to take out your loan. Compare interest rates between lenders to make sure you’re securing a loan at a competitive rate.
Check that you are eligible. Tiny homes may be the exception to some lenders, so make sure that your tiny home purchase fits within your lender’s eligibility criteria. You also need to make sure you meet the requirements too. Some lenders only provide loans in certain provinces, while others won’t work with self-employed applicants or anyone relying solely on government assistance, for example.
Determine terms and repayment options that fit your budget. Your tiny home is, essentially, a smaller scale mortgage. How long do you intend to take to pay off your tiny home financing and how much of your budget can you allocate to it? Make sure the lender you want to work with provides loan terms that suit your needs. Most will offer flexibility in your repayment plan, providing you with the option to make payments weekly, fortnightly or monthly.
How else can I pay for a tiny house?
Save up. Tiny houses are inexpensive enough to realistically save up for the basic expenses. Selling some of your belongings — which you’re going to have to get rid of anyway — might help speed the process along.
Crowdfund. Reach out to your social network by setting up a crowdfunding campaign. Be sure to set a goal high enough to cover the cost of your tiny house after paying platform fees.
Friends and family. Ask for donations toward your tiny house fund in lieu of gifts, or just flat out ask a relative to borrow money to finance your tiny house. You might not have to pay interest, but be prepared for a damaged relationship if you’re unable to pay it back.
Credit cards. In a pinch, you can use a credit card to finance parts of your tiny house expenses. Just be aware that these typically have higher interest rates than personal loans, so only use it when absolutely necessary.
The financial risks of a tiny house
With any milestone purchase, consumers need to consider the risks involved, and tiny homes are no exception. While they may come with lower operating costs and less upkeep, there are some financial red flags to be wary of too.
Initial upfront costs. If you’re building your own tiny home, don’t forget that you’ll need to save up to purchase land or lease a lot on top of buying materials and hiring contractors to construct your home.
Parking fees and fuel. If you’re taking your tiny home on the road, you’ll need to factor in the costs for parking your tiny home, buying gas and covering off maintenance and repairs.
Insurance and taxes. Whether your tiny home is an RV or it’s a fixed property, you need to keep your investment insured. In some cases, you may need to buy homeowner’s insurance, car insurance, and cover off property taxes and permit fees.
Appliances and utilities. Your tiny home needs to be fitted with gas, electricity, and maybe even heating and cooling. You’ll also need to fit your tiny home with appliances, which may be trickier to do compared to conventionally sized homes.
Resale value. It’s important to note that tiny homes don’t have the same resale appeal as full-sized homes because they’re so niche. If you’re thinking of buying a tiny home to flip or resell in a few years, keep this caveat in mind. Renting a tiny home may be a better option.
Amelia buys a prebuilt tiny home
Imagine this scenario: Amelia recently graduated from university and was loaded with student debt. Owning a home was always a dream of hers, but getting there seemed impossible with her monthly student loan payments and entry-level job. A tiny house, however seemed like a possibility — which became a reality when she found a pre-built RV house for $68,000 through a tiny house manufacturer.
Here’s how the costs broke down:
Cost of house: $62,950
Exterior steps: $229
Shipping to Ontario: $4,000
Other fees: $499
Total: $67,678
She looked around for different personal loans and decided to finance directly through the manufacturer — it was easier and the rates weren’t that different from what other lenders were offering. She got a 15-year loan with a 5.59% interest rate and a 20% down payment of $13,535.60 — which her parents loaned her without interest. This meant that she had 15 years of monthly repayments of $445.
Other costs included a $97.02 annual registration fee for a 9,000-pound trailer and a $950 monthly rental fee for an RV spot with electricity and water included.
Her total housing costs added up to about $1403.08 per month.
What is a tiny house?
A tiny house is a residential building that is no more than 400 to 600 square feet in size. Think of RVs converted into miniature, portable homes or tiny cabins, containers or loft-style properties in which every inch is put to use strategically. These tiny homes can range from bare bones Spartan, to rustic to futuristic, and even completely green-friendly with solar panels, a rainwater catch, filtration system and a composting toilet so you can live off of the grid.
How much does a tiny house cost?
Tiny houses are most often defined as residential buildings less than 500 square feet — though sometimes anything less than 1,000 square feet is considered a tiny house. They tend to cost a fraction of a regular home, which can come with thousands of square footage. But that doesn’t mean it’s cheap. How much you can expect to pay depends on whether you plan on buying a tiny house or building one.
It also depends on your area’s regulations. Some local governments require homes with a foundation to be a certain square footage. Others have restrictions to camping on private land — which applies to your home if it’s classified as an RV. Make sure you know your local laws before deciding where or what to build.
Buying a prebuilt tiny house
This can be the easiest way to do things, but there are still several costs to consider, especially if it’s an RV. If your home is built on solid foundations, your main costs are the home itself and the land.
If you’re buying an RV, you can either buy land, park it on private property belonging to friends or family, rent a long-term RV spot or move it around public land. But you’ll also pay for a trailer license, yearly RV registration fees — not to mention having a car strong enough to drive it around.
Expense
Typical cost
Tiny house or RV, including extras and shipping fees
$70,000–$500,000
Buying land
Over $200,000 (plus property taxes), depending on location
Renting an RV spot
$500 per month plus water and electricity hookup fees (around $450 per month)
RV registration fee
$20–$200 a year, depending on regulations
Building a tiny house from scratch
Building a tiny house, is usually cheaper than buying one, with costs typically adding up to between $10,000 to $40,000. But they can take a long time to build — sometimes even years. On top of the expenses like buying land and getting a trailer license listed above, here are some of the main expenses you can expect to come across when building your new home:
Expense
Price range
Trailer
$10,000–$35,000
Doors and windows
$1,000–$3,000
Lumber
$3,000–$10,000
Insulation
$500–$2,000
Roofing
$500–$1,000
Siding
$1,500–$3,000
Wall paneling
$500–$2,000
Flooring
$300–$2,000
Light fixtures
$200–$800
Hiring an electrician
$1,500–$3,000
Water heater
$500–$1,000
Shower tile
$300–$1,000
Toilet
$800–$1,500
Other bathroom fixtures and plumbing
$600–$2,000
Space heater
$200–$800
Cabinets (storage and kitchen)
$1,500–$5,000
Kitchen counter
$300–$2,000
Kitchen appliances
$1,000–$3,000
Screws, nails etc.
$500
Paint
$50–$200
Your time
400–600 work hours
Don’t have the time — or skills — to do all that work? Some manufacturers can meet halfway with a tiny house shell. All the basics are pre-installed like water lines, electricity and sewage systems, but you can still customize it to your liking. These typically cost between $10,000 and $35,000.
Or you can buy a prefab tiny house kit, which you can put together yourself for less than $10,000 or hire someone to do the work for you.
6 tips to enjoy living in a tiny house
Splurge a little. Tiny houses are all about quality, not quantity. Getting those Italian bathroom tiles you’ve been lusting over since your 20s might not be that unaffordable since your living space just got a lot smaller. Make it a space you truly want to spend time in.
Take advantage of outdoor space. Whether it’s building a tiny roof patio or a front porch, using your outdoor space can make your home feel larger than it is and provide some much-needed change during the days you spend mostly at home.
Make your furniture multitask. With minimal space, it doesn’t make sense to own anything with just one purpose — especially not furniture. Get a sofa, or armchair, that doubles as a bed. Find a table that also acts as storage space.
Keep colors light and simple. Light colors can make rooms feel larger than they are and dark colors have the opposite effect. Don’t get too busy with the color schemes to keep yourself from feeling claustrophobic (or if you do, make it something you can easily change).
Become a strategic shopper. Limited storage space means everything you own needs to have meaning. The same applies to groceries. If you plan on cooking at home a lot, coordinate your meals around what you have. That way, you won’t end up with a fridge full of expired yogurt. Sticking to a shopping list is essential.
Stay tidy. Making your bed in the morning and cleaning up after meals can make all the difference when living in a space where you have to look at your bed and kitchen sink all the time. Mess tends to make spaces look cluttered, which can make your home seem smaller than it actually is.
When buying a tiny house is a bad idea
Tiny houses may be trendy now, but they might not be worth it if…
You want to invest in real estate. At this point, tiny houses aren’t much more than a fad. It’s a niche market, meaning that finding a buyer is going to be a lot more difficult than other types of real estate. There’s also a chance people will lose interest before you’re ready to sell.
Your family (or roommates) aren’t 100% on board. Living in a tiny house is a commitment that involves everyone and small living spaces can exacerbate conflict. If you live with someone that’s claustrophobic or isn’t interested in parting ways with their belongings, you might want to rethink buying a tiny house.
Bottom line
Tiny house living is a lifestyle that’s not for everyone. While it’s cheaper than buying a house, you probably won’t be able to sell it for a profit like other types of real estate. Make sure everyone’s onboard before you buy one and also be aware that life changes — like an unexpected pregnancy — have made many families reevaluate their decision.
If you’re sure it’s the right thing for you, you might want to start by comparing personal loans to get an idea of how much it’s going to cost you on a monthly basis and in the long run.
Frequently asked questions
It depends on who’s doing the building. For a professional, it can take around 120 hours of work. If you want to do it yourself, it can take between 400 and 600 hours, however — between 1.5 and 2.5 months of a full-time job.
The legal height of your tiny house varies by province and whether or not it is mobile or not — check with your local provincial service centre if it’s an RV. Typically, your home can be about 13.5 feet tall.
It depends on how heavy it is. Tiny houses can range from 7,000 to 15,000 pounds. Typically a ¾ or one-ton diesel truck works best. You can also rent a truck to tow your tiny house if you don’t plan on moving it around often.
Yes. Many lenders offer mobile home financing. You may want to learn more about your options for financing a mobile home since there are multiple types of loans you could apply for.
Carmen Chai is a freelance writer at Finder, specializing in financial products. She is an award-winning Canadian journalist who has lived and reported from major cities such as Vancouver, Toronto, London and Paris. She has reported on personal finance, mortgages, and banking products for nearly a decade.
Many lenders accept a personal loan with a cosigner because it reduces their risk. In turn, cosigners can help the borrower secure a lower interest rate and better financing conditions.
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What is a tiny house?