How to Finance A Tiny House
When buying a Tiny House, cash is king. Having a down payment of at least 20% will dramatically increase your odds of successfully getting financed. It is important to note that Tiny Homes do not qualify for traditional home mortgages. However, here are a few of the most common types of loans our clients have used to make their Tiny House dreams come true.
Because our Tiny Heirlooms are on wheels well qualified buyers can many times finance them as an RV or travel trailer. The amount the bank is willing to lend, generally not to exceed $100,000, and the interest rate will be determined by financial factors such as your credit score, debt-to-income ratio, work history, etc.
Most banks and credit unions offer RV financing. Your history with a particular bank or credit union can help offset some shortcomings in your credit history. Because of this your primary bank is a great place to start seeking financing.
Personal and unsecured loans can be acquired through your bank or credit union as well as many online lenders and peer to peer lending programs. Because a personal or unsecured loan is not backed by any collateral should the borrower default on their loan the credit requirements tend to be more stringent than RV loans.
Lightstream offers unsecured loans up to $100,000 for well qualified borrowers.
Peer to peer lending sites that also offer up to $100,000 are SoFi and EVEN
Home Equity Loan
Perhaps the easiest way to finance a tiny home is a Home Equity Line of Credit or “HELOC”. Most lenders will loan you a percentage of the equity in your home. Home equity loans are the easiest to qualify for and generally have the best terms. For those reasons, if you are already a homeowner this would be the best choice.
Who is a “well qualified” buyer?
Although lenders will look at a number of factors when determining whether or not to fund a loan here are some common criteria used by most lenders to determine whether or not a buyer is well qualified. It is not necessary to check all the boxes in order to qualify but the more you can the better.
Credit Score: Most financial institutions like to see a FICO score of 720 or higher. We have however seen successful financing with scores as low as 680.
Down Payment: 15-20% of purchase price
Credit History: 3-5 years of credit history. Comparable loan amount in recent history.
Debt/Income Ratio: Less than 45%
Income: Gross annual income equal to or greater than amount being financed
No Credit Defaults: Late payments or bankruptcies.