Understand your tiny house financing options.
Tiny House on Foundation
Financing a tiny house on foundation is a more familiar process for lenders and thus much more straight forward. While deposits, rates and other factors vary greatly: “Construction loans are typically short term with a maximum of one year and have variable rates that move up and down with the prime rate. The rates on this type of loan are higher than rates on permanent mortgage loans. To gain approval, the lender will need to see a construction timetable, detailed plans and a realistic budget, sometimes called the “story” behind the loan. Once approved, the borrower will be put on a bank-draft, or draw, schedule that follows the project’s construction stages and will typically be expected to make only interest payments during construction. As funds are requested, the lender will usually send someone to check on the job’s progress. Of late, lenders have been combining the two into a single 30-year loan with one closing, called construction-to-permanent financing. Because of the bank’s greater loan-to-value risks in these, I might add, be prepared to put a little more skin in the game: The lender may offer only 80 percent of project costs or even less. If you already own the land, that can serve as equity.” Bankrate.com
Tiny House on Wheels (THOW)
Like many rapidly growing industries the tiny house movement is experiencing its own challenges with financial institutions slowing adapting their lending programs to better suit the tiny house buyer. Below are some of the common options for financing your tiny home.
THOW Mortgage – Tampa Bay Tiny Homes is currently working with a local lender to offer 10 and 15 year mortgages for tiny houses on wheels which will require 20% down but will allow buyers to spread their payments over a longer term helping to facilitate a low monthly cost of living. Contact us now to find out more about this program.
Unsecured bank loan –These are hard to get and you have to have exceptional credit, but for some it might be an option. It would be similar to getting a used car loan or a personal loan to take a vacation or pay some medical bills or who knows what else. Talk to your local bank and see if you qualify. Local credit unions tend to have higher success rates over the mega banks. LightStream is a division of Suntrust that offers RV and Personal loans. A new lender we have talked to and can recommend is SoFi. Eligible borrowers can get unsecured loans for 2-7 years with fixed and variable rates between 5-14%. An application to this lender will not ding your credit since they perform a “soft” pull.
Secured bank loan – Do you own anything else free and clear that would count as collateral for the amount borrowed? Things like your car, a boat, motorcycle, RV, bikes, other? Again, talk to your local bank.
Friends/Family – You might know someone with cash that would be willing to loan you the money on a 3 to 5 year note with an interest rate that will make it worth their while, yet, not put huge undue burden on you, maybe like 8-10%. I am no loan expert, but here is some quick math. Let’s say you want to buy a Tiny House for $35k. Hopefully you can put up $5k of your own cash. No matter where you get a loan, the lender is going to want you to have some skin in the game. That leaves a balance of $30k. At 9% over three years, your total interest would be around $4300. That is a decent return on investment for the lender, and is a bit high for you, but it’s not ridiculous. Want to see ridiculous? Just look at how much interest you would pay for a 30 year mortgage on a note only worth $100k at 6% ($115,838.19 in total interest, in case you are curious)
RV Loan– Some Tiny House builders have become RVIA certified as a means to sell more units utilizing RV loans. You can read more about this here. If you are working with a lender that requires a RVIA seal to get an RV loan, many insurers cannot help.
Having challenges getting financing?
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