- DIY or Buy a Tiny House?
- What It Really Costs to Build a Tiny House
- Doing it (All) Yourself
- Buying a Prefrabricated Tiny House
- Tiny House Financing: The Low-down
- How to Increase Chances of Your Tiny House Financing Approval
- Final Thoughts
The idea of a new home (tiny or not) is exciting; it’s a step towards independence and putting on your big girl or boy shoes.
And while everything may seem bright and sunny while you’re planning it in your mind, when you decide to pursue it, you’re faced with a big challenge upfront: your tiny house financing.
Luckily, tiny houses have gathered enough demand that there are different possible solutions to this challenge.
Now, just because you’ve decided to downsize the way you live, it doesn’t necessarily follow that the cost to take on this project will be tiny, too.
Building a home doesn’t come cheap. Luckily for you, I’ve done the research to help you on your journey.
DIY or Buy a Tiny House?
At this point of the tiny house journey, you typically are at a cross-road and need to decide between constructing the tiny home or buying a prefabricated one. Building a tiny house can typically range from $10,000 to $100,000 depending on the plan, type of materials, and size of your home.
The average cost stands at the $60,000 mark, but this includes the cost of both DIY and Prefabricated Houses. Averages between those types vary.
What It Really Costs to Build a Tiny House
Let’s start with the basics: the cost of building a tiny house. It’s a common misconception that tiny houses are significantly cheaper than traditional homes. While they can be more affordable, the cost range is quite broad, typically between $10,000 and $100,000. Factors like materials, size, and amenities play a huge role in the final price.
One thing I always remind clients is that while DIY tiny house builds can save money, they also carry risks. Overlooking a crucial aspect of the construction can lead to costly fixes down the line. That’s why it’s important to carefully weigh the pros and cons of building vs. buying.
Doing it (All) Yourself
It’s typically cheaper to construct your own tiny house because you take away the overhead expenses from the very beginning. BUT (and this is a big but) the amount you save goes directly into the time and effort that is invested in building the house.
Choosing the DIY route also highly depends on how urgent the need is to move into the house and whether or not you have the time to commit to planning and building it.
Many tiny house owners have gone the route of doing it themselves, which greatly decreased the house’s overall cost.
Sourcing materials would be the most tedious part of the process but can save you upwards of $5,000 if you can find great deals and suppliers. Labor is also something you have to think about.
Some owners have hired contractors to help with the labor. Depending on the gravity and complexity of the design, hired labor can go up to $10,000 (or more, depending on the size and design of your tiny house) for the whole duration of the project.
Here is an estimated cost of doing it yourself:
|Building Permits||$200 upwards||Depends on the building codes in your area, complexity of the construction, etc|
|Trailer/Shell Unit||$3,000 to $6,000|
|Windows||$500 to $4,000||Dependent on the number of panels needed and if you will be including a skylight as a feature of your tiny house|
|Siding Materials||$1,000 to $2,500||You may be able to shave off a few hundred dollars if you scavenge for good condition used materials|
|Roof and Floor Materials||$800 to $3,000|
|Insulation and HVAC System||$1,000 to $4,500|
|Furniture & Fixtures||$1,000 to $4,500||Includes Lighting, Other Fixtures, Mattresses, Built-in or Modified Furniture, Outdoor Chairs/Tables|
|Bathroom Fixtures and Plumbing||$ 2,100 to $7,500||Includes shower, toilet, water heater, extra plumbing materials, etc.|
|Appliances||$400 to $4,000||Dependent on how highly functioning you want your house to be (the majority focus of the budget would be the kitchen appliances)|
|Lumber Costs||$1,000 to $6,000|
|Labor||$5,000 to $10,000|
|Total Cost (Without Labor)||$15,500 to $114,000+||Average cost per square feet (~200 sq ft): $77.50 to $570.00|
|Total Cost (With Labor)||$18,500 to $124,000+||Average cost per square feet (~200 sq ft): $92.50 to $620.00|
PRO TIP: Do your research on the best materials you can use for your tiny house. Since you’re saving on overhead expenses, we highly suggest making sure your tiny house is future-proofed.
You don’t want to think short-term and scrimp on materials since repairs in the future may cost you more. Figure out what works best for the weather that you plan on being in, the majority of the time.
It’ll be a good idea to source for a specialist (in this case, a tiny house construction expert) and not just the average home builder. They may be little pricier than others, but you’re paying for a specialised expertise. Here is an example of one tiny house manufacturer:
New Frontier Design (Tennesse, USA)
- About: New Frontier Design would be your most luxurious option; they offer a great blend between function and design. Their tiny houses are designed and furnished using top-quality materials. They also offer features that are not commonly available in other tiny houses like walk-in closets, full-size showers, and full-size kitchens.
- Cost and Financing Details: Starts at $80,0000 (in-house financing is not available)
- Delivery: Delivery anywhere to the USA
If you’re hesitating to move into a tiny house because you’re worried about the space or the amenities that you might not be able to have, you might want to consider purchasing a tiny house from a manufacturer by New Frontier Design.
Buying a Prefrabricated Tiny House
A good rule of thumb when computing the cost of a prefabricated house is to get the total cost of the materials you want to use and divide it by 40%.
This is because 60% of the total cost is attributed to overhead expenses (labor, electricity, delivery, et cetera).
If you wanted to build a house where the raw materials cost $30,000, the total cost of a prefabricated house would be $75,000 ($30,000 / 40%).
The nice thing about going down this route is you have the cost already upfront; you know what you’re paying for and there’s no need to research and go to different hardware stores to source materials.
Most suppliers also offer tiny house financing, which makes this a sensible choice when you don’t want to undergo the hassle of trying to apply for a bank loan. However, most in-house financing options require a 10% to 20%.
Here are a few tiny house Fabricators / Manufacturers that you can look into:
- Tumbleweed Tiny House Company (Starts at $57,000)
- Minimaliste Houses (Starts at $53,000)
- New Frontier Design (Starts at $80,000)
Most of these tiny house fabricators offer pick-up or can deliver to anywhere in the U.S.
Tiny House Financing: The Low-down
You have several routes to take when it comes to financing your tiny house. Here is a comprehensive list of all your options:
1. Personal Financing
I’m going to start on a positive note and put this here on top. While it may not be the most realistic option, this is the best option that you have when it comes to building a house – tiny or not tiny. Consider this as an option only if your tiny house dream is not urgent.
Using the plan and budget that you’ve crafted, you can ideally and realistically set aside a monthly portion of your income to cover most of the cost by X amount of years. Of course, X amount of years is determined by how soon you want it.
You can also decide to take this on a long-term project wherein you build as you go along and can afford it. In months where you have more disposable income, maybe put some money into your tiny house and in months where the budget is tight, don’t work on it.
However, this works best if it isn’t urgent and you have somewhere to store the skeleton of the house before completion.
2. Financial Institutions/Lenders
The best way to approach this source is to go to the bank and ask them what your options would be to finance a project like this.
I understand the hesitation, but if you want to be comprehensive and want to see all your options before deciding, you should talk to all the banks in your area.
Similar to when you look for a housing loan, you need to go to multiple banks to compare the interest rates and such. Just note that you have to be very clear with the purpose of the loan so you can have a productive conversation with the bank officer.
Generally speaking, these are the types of loan options that you could qualify for:
- Personal Loan: A personal loan will generally cover the value that you’ve calculated at the beginning, but since personal loans are unsecured loans, the rates may be a bit higher than an average loan. To be approved for a personal loan, you typically need to have a good working relationship with the bank.
- Auto Loan: Another option if you’ve decided to hire someone to build your tiny house is to check if the manufacturer is accredited by the bank for an auto loan. Since some tiny houses can be classified under RVs, you may be able to secure an auto loan from the bank. Take this with a grain of salt as again, it is dependent on the bank.
- Credit Card: This is your worst-case scenario when it comes to bank financing. I won’t go into so much detail about this, since we all know how credit cards work, but this should cover the initial expenses of purchasing the materials and commissioning the manufacturer.
Ideally, you wouldn’t want to loan the entire amount from the bank. You’re better off paying most of the construction expenses with your savings so that you can be debt-free quickly.
Typical requirements to secure a loan:
- Loan Application Form
- Valid ID with Photo and Signature
- Income Documents (Returns, Certificate of Employment, et cetera)
- Bank Statements
- Proof of Address (Billing Statements, Rental Agreement)
Financial institutions you can look into:
- Liberty Bank
- Lightstream (A Division of Suntrust Bank)
- Marcus by Goldman Sachs
- Sofi Personal Loan
- Proper Personal Loan
3. Niche Manufacturer (with Tiny House Financing)
This would typically be your next option if the banks in your area will not be able to approve your loan.
Tiny house manufacturers usually have in-house financing options that you can choose from. These rates would be better than the interest rates you will receive from a Bank or Financial Institution and they will usually have longer and more favorable terms.
The only downside of going down this route would be that they usually require a downpayment of 20% to be made before they approve your application.
In-house financing options typically use the tiny house as collateral, so in case you are not able to pay your amortization, they will repossess the house.
Although you should also note that those that don’t require collateral would mean a more difficult and stringent process to getting approved.
Here are two of the most popular tiny house manufacturers that offer in-house financing:
- Tumbleweed Tiny House Company (Colorado, USA)
Tumbleweed Tiny House Company is an oldie, but a goodie. They offer a variety of Tiny House Options that are highly customizable and pre-made completed houses if you’re in a hurry.
The website offers a quotation service under the “Design Yours” page wherein you can choose from the different options they have per line item and get a quote based on what you’ve chosen. Tumbleweed also offers the choice of a semi-DIY Home wherein you can complete the construction yourself.
Cost and Financing Details: Starts at $57,000. Offers in-house financing and you can check if you qualify for a loan by answering a few questions on their Financing Page.
Delivery Options: Pick up in Colorado or Delivery anywhere in the USA
- Minimaliste Houses (Canada)
Minimaliste Houses emphasize design and specialize in creating modern/open spaces to ensure that your tiny house doesn’t feel so tiny. It operates largely on the needs identified by you, the client.
It offers 14 base models that are highly customizable based on the requirements identified and specified.
Their website is also very customer-friendly and offers the option to get a free quotation based on your choices. While they are based in Canada, they can deliver anywhere in North America. Take note that the prices stated on the website are subject to tax and delivery charges.
Cost and Financing Details: $ 65,000 to CAD 160,000 (~$53,700 to $130,000); “In-house” Financing available with Liberty Bank with loanable amounts payable up to 23 Year Terms
Delivery: Delivery anywhere to the USA
4. Home Equity Loan
Home Equity / Home Improvement Loans are only applicable to those who own a home. This means that the tiny house would need to be “positioned” as an accessory to your currently owned home.
If you are applying for a Home Equity / Home Improvement loan, your current home may need to go through the appraisal process. Failure to make payments would result in potentially losing your home because your house would typically be the collateral for the loan.
If you don’t foresee yourself missing payments and you already own your home, this could be your option to move forward with your plan. These loans may have lower rates and longer repayment terms.
5. Friends and Family
Tread carefully with this option as your reputation and your relationship with the lender may be on the line. If you’re considering this option, we suggest drafting a document or a formal contract, which states the guidelines by which the loan should follow.
Some examples of terms that should be on the document would be a fixed interest rate based on what is agreeable to both parties, the number of years until full payment has been made, the mode of payment and how often it needs to be paid, and et cetera.
It also might be a good idea to show the breakdown of costs and the project plan (complete with milestones) to express how serious and committed you are to this project.
Navigating Tiny House Loans: What You Need to Know
Securing a loan for a tiny house is different from getting a mortgage for a traditional home. You’ve got several options like personal loans, RV loans, or builder financing. Each has its own set of requirements and benefits.
For instance, personal loans are versatile but often have higher interest rates. RV loans are an option if your tiny house is mobile, but they require adherence to specific standards. Understanding these nuances is key to choosing the best financing option for your situation.
When it comes to tiny house financing, it’s essential to understand that the options differ significantly from traditional home mortgages. Here’s a detailed guide on what you need to consider:
- Loan Type:
- Personal Loans: Versatile and can be used for various purposes, including tiny house purchases. Keep in mind that they often have higher interest rates.
- RV Loans: Suitable if your tiny house is mobile and meets specific standards. However, the house can’t be your primary dwelling.
- Builder Financing: Some tiny-home builders offer financing which may have longer terms and might require a down payment.
- Annual Percentage Rate (APR):
- Maximum Loan Amount:
- Approval Process:
- Funding Time:
- Other Loan Options:
How to Increase Chances of Your Tiny House Financing Approval
There is no sure way to get approved, except having a decent credit score. While some lenders are willing to give you the loan approval, they may use the tiny house as collateral/security.
This means that if you are unable to make payments, your precious tiny house can be repossessed. Definitely not the ideal situation, so before applying for a loan, here are a few things that you can do:
1. Save up for a sizeable downpayment to purchasing a tiny house.
I cannot stress this enough. Banks are more likely to give you favorable terms if your loan amount isn’t sizable versus the income you’re generating or your assets.
To achieve this, you really need to plan and start setting aside a percentage of your income to build the pool of money that you can spend on the construction or purchase of your tiny house.
This may take some time, but good things come to those who wait and if this is your dream then it’s worth the wait.
2. Improve your credit score. Pay off payables and keep your purchases small.
This is a sure way to improve your credit score. This is the best indication to the bank that you are trustworthy, which can ultimately give you higher chances of success with better interest rates.
Also, make sure that you aren’t trigger happy with your credit card. Spend carefully while you haven’t been approved.
3. Collect and Select.
If there is no cost to asking for a quotation from wherever you’re trying to loan from, it’s extremely important to get all your options in.
This way, you can compare each option and make a good decision regarding the payment options that are favorable to you.
Additional Financial Considerations for Tiny House Living
When planning your tiny house finances, don’t forget to factor in insurance, taxes, and potential resale value. These elements can significantly impact your overall budget and long-term financial planning.
In addition to budgeting, there are other financial aspects to consider when opting for tiny house living:
- Comparing Costs with Traditional Housing:
- Loan Challenges:
- Traditional mortgages may not be suitable for tiny houses, especially those on wheels. Some lenders prefer financing only for tiny houses on foundations.
- Purchasing Options:
- Consider off-the-shelf builds versus DIY options. Pre-built homes are more expensive but require less work, while DIY can be more cost-effective but requires more effort and skills.
- Land Considerations:
By understanding these detailed aspects of financing, budgeting, and additional considerations, you can make informed decisions and navigate the tiny house journey more effectively.
The purpose of downsizing and moving into a tiny house is so that you can avoid the expenses that go along with regular-sized houses. This, ideally, would be the step towards financial independence and freedom.
Make sure that if you cannot afford to pay in full, that the terms set by the financing options are realistic and doable for your lifestyle.
Dan Mehta’s story is a cool mix of architecture and marketing – an architect’s eye for detail and a marketer’s knack for storytelling. Dan’s been on board with the tiny house movement right from the get-go, always keeping an eye on how these pint-sized spaces evolve. But what really gets him jazzed is finding creative solutions to decorating small spaces.