If you’re searching for an affordable home, tiny homes are a solution that has been growing in popularity. However, financing a tiny home has a unique challenge: they often don’t qualify for a traditional mortgage. Since tiny homes usually range between 60 and 600 square feet and may be built on wheels, they may not be considered permanent homes.
Nevertheless, there are several options for financing a tiny home, including RV loans, chattel mortgages, and more. However, the type of financing you qualify for will depend on the home you are buying and your individual circumstances.
Key Takeaways
- It can be difficult to get traditional mortgage financing for a tiny home, so you may need to consider alternative financing options
- Many lenders will require a larger down payment for a tiny home, often more than 20%
- When budgeting for a tiny home, it’s essential to consider the setup and delivery costs, in addition to the purchase price
What is a Tiny Home?
A tiny home typically ranges from 60 to 600 square feet. These homes can be on-grid, connected to utilities such as water and electricity, or off-grid, relying on alternative energy sources and independent water systems. Tiny homes can be built on a permanent foundation or designed to be mobile, often placed on trailers for easy moving.
Building codes and regulations for tiny homes vary by province and municipality, which affects where and how these homes can be built. To find financing for a tiny home, you’ll need to comply with local rules and regulations, such as minimum dwelling size and foundation requirements.
How to Finance a Tiny Home
Buying a tiny home may require you to look for alternative financing options. Many traditional mortgage lenders will not finance a tiny home due to their unique characteristics. However, there are several funding options, including RV loans, chattel mortgages, and personal loans.
Traditional Mortgage for a Tiny Home
Securing a traditional mortgage for a tiny home is possible but challenging. Tiny home mortgages come with unique challenges, as lenders often have strict requirements regarding property type, size, and zoning. The home generally needs to be on a permanent foundation and meet specific lender criteria. For example, the home will need to be appraised to determine its market value, and the land must be zoned for residential use.
Pros:
- Lower interest rates than other options
- Longer loan terms and amortization
Cons:
- Some lenders may not be willing to finance a tiny home, regardless of the price point, square footage, or whether they are built on a foundation
- Strict lending criteria that the home might not meet
- Home must be on land you own or rent and zoned for residential use
Recreational Vehicle (RV) Loans
RV loans, classified as recreational vehicle financing, may be an option for tiny homes on wheels. They offer flexibility with terms ranging from 10 to 20 years. Generally, you will need to provide a down payment of at least 10%, although some lenders may require a down payment of up to 20%.
Pros:
- Good option for tiny homes on wheels
- Longer loan terms
Cons:
- Large down payment
Chattel Mortgage
Chattel mortgages finance movable personal property, such as tiny homes, prefabricated homes, or mobile homes, typically located on leased land. A chattel mortgage functions more like a car loan, where the home itself is the collateral.
Pros:
- An option for leased land
Cons:
- It may be difficult to obtain, as not many lenders offer chattel loans
- Shorter amortization periods
- Typically higher interest rates than traditional mortgage loans
Personal Loans
Unsecured personal loans offer a quick and flexible financing option for tiny home purchases. This option may be best if you are buying a tiny home through a private sale, without a down payment, or purchasing a tiny home kit to build yourself. To qualify for a personal loan, it’s essential to have strong financials and a good credit score, as lenders will assess your financial stability before approving your application.
Pros:
- No down payment
- Easy and quick to obtain if you have good credit
Cons:
- Interest rates can vary widely, so be sure to compare loan offers from different lenders
- Shorter terms may mean higher monthly payments
Home Equity Products
If you already own a home, you can borrow against the equity in your property to purchase a tiny home. A home equity line of credit (HELOC) functions similarly to a credit card, offering easier qualification and often lower interest rates. This can be a great option if you’re looking to add a secondary suite to your backyard.
Pros:
- No down payment
- Easy and quick to obtain
Cons:
- You must already own a home
Tiny Home Builder Loans
Some tiny home builders offer financing options when you buy one of their custom or pre-built tiny homes. Interest rates, loan terms, and amortization periods will vary depending on the lender.
Pros:
- Builder’s familiarity with the property streamlines the financing process
- Possibly able to negotiate terms with the builder
Cons:
- Only available through certain builders
Tiny Home Costs
The purchase price of a tiny home is not the only cost associated with buying a tiny house. For example, for a tiny home on wheels, you’ll need to consider:
- Transportation costs – Do you have a vehicle that can tow the tiny home?
- RV park hookup – If you’re parking your home at an RV or mobile home park, you’ll need to consider the costs of support blocks, utility hookups, and adding a deck or stairs
On the other hand, if you’re installing your tiny home on a foundation, there are several extra costs to consider, all of which could add $19,000 to $40,000 or more to your home price:
- Delivery – Depending on where your builder is located, having them deliver your home could add several thousand dollars to your final cost
- City services – Extending city services like sewer, water, gas, and electricity to your tiny home can be costly
- Foundation and set up – Setting up your home could include crane rental, setting up the foundation, adding skirting, obtaining building, zoning, and occupancy permits, and more
Tips for Securing Tiny Home Financing
Obtaining financing for a tiny home can be challenging, but improving your application can increase your chances of approval. Here are the factors that can influence your loan application:
- Credit score – A credit score of 680 or above is typically required for a mortgage with a traditional bank. The higher your credit score, the more likely you are to be approved for a loan
- Income – Most lenders require stable and consistent income to ensure that you will pay your loan
- Debt – How much debt you already hold impacts your ability to be approved for a loan
- Down payment – You may be required to pay up to 20% of the purchase price of the tiny home as a down payment
Bottom Line
A non-traditional home, like a tiny house, can be an affordable way to become a homeowner in Canada. However, getting a loan to buy your dream tiny house can be challenging. From traditional mortgages to RV loans, chattel mortgages, personal loans, and home equity loans, each option has its own set of benefits and requirements. Be sure to compare all your options before purchasing a home.
Financing for Tiny Homes FAQ
How can I finance a tiny home in Canada?
The primary options for financing tiny homes are traditional mortgages, RV loans, chattel mortgages, personal loans, and home equity loans. Choosing the right option depends on your specific needs and financial circumstances.
How much is the monthly payment on a tiny house?
The monthly payment on a tiny house will vary widely depending on the purchase price of the home and your loan interest rate. According to Minimaliste Homes, your monthly payment may vary from $1,000 to $2,000 with an RV loan.
