5 Things to Know When Financing a Tiny Home

Ready to live big in a small space? Did the pandemic help you decide a slimmed-down lifestyle is a better option for you? Maybe you’re getting married and need a starter home? A “tiny home” could be your solution! But purchasing one has some not-so-tiny conditions to understand first. Read on for five things to know about financing your mini mansion. 

1. What Is a Tiny Home? 

There are many answers to this question. Tiny homes are structures with basic (but beautiful!) sleeping, kitchen, and bathroom features at under 600 square feet. They can be lake cabins, modular “pods” for aging relatives, backyard “she-sheds,” converted RVs, or even school buses (minus the spitballs)!

For the purposes of this article, we will discuss homes that fall into Atlantic Bay’s tiny home loan guidelines: 

• “Stick-built” (like a regular home) or prefabricated/modular (built offsite and shipped to you) 

• Has a permanent foundation (no wheels or trailers) 

• Primary residence or second home (no investment property/rental) 

• Single-family only 

• 600 square feet maximum 

• Must meet additional agency guidelines (Fannie Mae, FHA, etc.) 

There are also many methods for finding a tiny home. You can buy an existing tiny home on a lot, have one built and shipped to you, or even build one yourself with a floor plan from Pinterest or kit from a big-box hardware store.

But when getting a tiny home mortgage comes into play, there are some limitations. Again, we’ll focus on the types of tiny homes Atlantic Bay finances: existing or prefabricated/modular tiny homes that are built, shipped, then constructed on land you own. 

2. Mortgages Are Hard to Find  

Atlantic Bay is especially proud to offer tiny home mortgages because so many lenders cannot. Lenders put a lot of work and resources into making home loans possible, so they have “minimums” clients must meet to make a profit. Because basic tiny homes cost between $30,000-$60,000, their cost tends to fall beneath those minimums.

Atlantic Bay’s tiny home loan minimum is $50,000. But rest assured, a tricked-out tiny home can cost well over $100,000! That’s why we offer Conventional, FHA, USDA, and VA options for primary-residence tiny homes, just like with any other home. And if you want a tiny home as your vacation property and meet the700 credit score minimum, we have Conventional options for that, too. 

3. Other Ways to Buy a Tiny Home  

Because tiny homes typically cost less, many buyers opt to simply pay cash. Otherwise, you can try:

Personal loans: If you have excellent credit, you can access lower rates with personal loans. They’re usually unsecured loansA loan that only requires creditworthiness, not collateral, such as student loans, and credit cards.unsecured loansA loan that only requires creditworthiness, not collateral, such as student loans, and credit cards. with shorter terms, like seven years, and you may have higher payments.

RV loans: For tiny homes that travel or rest on a trailer, RV loans can do the trick. You can move from place to place without needing a permanent foundation, and you’ll likely have a longer term than a personal loan. But your home will need to meet safety regulations, you’ll likely have a down payment, and your home is your collateral.

Builder financing: Some tiny home builders may offer financing. What this actually means is they’ll partner with an online consumer finance company to do the financing. These lenders should be subsidiaries of larger, FDIC-insured banks, but do your homework to be sure.

Home equity: If you own a home already, you can borrow against your equity with a “second mortgage” like a home equity loan or a home equity line of credit (HELOC). A home equity loan is similar to your original mortgage. You borrow a set amount of money and repay it regularly, with interest, during a fixed repayment period. HELOCs are similar to credit cards, as revolving sources of funds you can access when you need them. Again, your home is your collateral. 

4. You Must Own Land  

Unlike parks where you can rent, you must own land to build a tiny home. Whether you purchase land or own a parcel already, ensure it’s zoned for a tiny home, and consider the costs of water and electricity services. 

5. Don’t Forget the Furnishings  

You’ll need to decorate and furnish your tiny home. You might want built-in beds, a stackable washer/dryer, or other custom items to maximize your space. Finding, purchasing, and installing these items add to your overall expenses.

In the end, whether you want that tiny home or decide that a small, traditional home is the way to go, we’ve got loans that’ll help you live the “less is more” lifestyle. Call Atlantic Bay today!