From our experience, there are four main ways to fund your tiny home.
1) Personal savings
2) Love money
3) Credit cards
4) Financing from bank or lending institution
Usually, one of the main goals of owning a tiny home is to be debt or mortgage free. Personal savings is the best way to go for obvious reasons. If you plan on using personal savings and have enough money, banks will need proof that you have had that money for 90 days in your account. So you will have to be able to provide bank statements from 3 months ago.
AKA money either given or lent to you from friends and family. This is a good option as usually if a friend or family loans you money, they do not also charge you an arm and a leg on interest or even let you pay it back at face value. That all depends on how much they actually love you! Kidding! If you are being gifted money to put a down payment, you need a formal, signed letter saying it is actually being gifted to you so you do not have any problems.
Something that is very normal is to max out those credit cards, but it is all personal preference. The down side of paying by credit cards would definitely be the high interest rates so if you have other options be sure to try and use those first!
Financing From Banks Or Lending Institutions
Right now, things change fast so what banks said they could and couldn’t do 6 months ago is different than is it now. The more people are asking and looking for lending, and the more banks and financial institutions are seeing there is a demand for it. This is something that also varies from institution to institution and location to location.
If your bank or financial institution says they can get you a mortgage, that is a huge red flag if they are on wheels. Of course, since most people who are going to buy a tiny house don’t want a mortgage, it may not be a big deal. Depending on whether or not you want your tiny home to have wheels, you may be able to get a personal loan or line of credit to cover the cost of buying one. If your tiny home is on wheels, it may qualify as an RV and you may be able to finance the purchase through a type of automotive loan.
There are a few tiny home builders that offer financing if you’re building from scratch, but don’t count on being able to get normal construction financing for a tiny home, especially if it’s a trailer. If you want your tiny home built on slab on grade or permanently attached to a piece of land, then you may have more options available to you, and available financing may resemble that of a home in a trailer park. You might have to have a 20 per cent down payment, as you would with some lenders for unconventional properties, but it traditional financing would still be an option. However, usually there is a minimum square footage for a house, in all my research, I believe it is above 800 square feet. You may be able to get a mortgage on a home less that 800 square feet but you would for sure be paying higher premiums.
Keep in mind that if you comply with some of the requirements necessary to secure financing, such as hooking it up to local services, such as water and hydro, or securing it to a piece of land by using a proper foundation, then you might not have the tiny house experience that you wanted, such as living off the grid and/or being mobile.
To save you some time, a few the things a bank or lender will need are a VIN number for the “vehicle” and a serial number, which is an actual number from the builder that goes onto your tiny home. They want to see tax returns from last two years, ask for your debt servicing ratio, ask for all of your info about assets and liabilities (make sure your liabilities are not more than 42%), usually they need a postal code and/or address where it will be parked, need building specifications, what is included in the tiny home so they can do an appraisal which is usually based on standard home construction, plan specifications, and it needs to be CSA certified, then they will put you through the process and you can get approved. Also, SPOILER ALERT, there typically is a maximum amount that you can actually get approved for.
You always don’t have to rely on one source either, you could use 10% from savings, some love money, some credit cards, and some financing! Time to get creative!
Jennifer McCarthy, Teacup Tiny Homes
If this information intrigued you or completely changed your mind and you want to begin your tiny home journey today, send us an e-mail at firstname.lastname@example.org and we can get you started!