Lots of folks out there in the tiny house movement might cringe at the idea of going into debt for a tiny house. In some ways, it seems totally opposite of the idea of financial freedom and the simplicity of living tiny. Why would you want to waste all the money on interest and stick yourself with loan payments for so long if the main point of going tiny is financial freedom?

In some ways, I struggle with it too. My husband and I have been really focused on finances over the last couple of years, and thanks to working hard and the magic of YNAB (You Need A Budget- more on that another time), we  just paid off all our credit card debt, we have an emergency savings, we have a little money set aside for retirement, we’ve almost paid off our new car, and we won’t be blind-sided by self-employment taxes.  We are by no means in perfect financial shape, but we are really proud of how far we’ve come. So you’d think the last thing we want to do is go into debt again.

Here’s the thing. For some people, financing a tiny house really is the best option- and I really do feel that we fit in that category. For us, honestly, going tiny has been a quick decision. We’ve been admiring tiny houses for a long time, but until we started seeing larger homes that are easier for families, and looking into parking options in our area, we really didn’t think it was realistic. So we haven’t had a long lead up to saving lots of money towards this. Even if we had, we were focused on our wedding in Augus and paying off a car loan, so it wasn’t really an option anyway. Right now, I switched to working part time and going to grad school for the next two years. So even though we’re making enough to get by, there’s really no bandwidth for savings (despite serious budgeting and pulling back in lots of areas). That means that even if we wanted to wait and save, it would be pretty much impossible for the next couple years.

Add to that knowing that even though building would be an amazing project an accomplishment, we really don’t have the time (work during the week, grad school on weekends), and hiring a builder is really our only option. Builder = more money (justifiably). On top of that, we want a bigger 28 foot model, which is significantly more expensive than a smaller tiny house. Plus, we want quite a few high-end finishes in there (what can I say…we want to enjoy it if we’re there full time) so that adds up fast.

Then comes timing. For us, we’re really thinking of going tiny as a stepping stone. We want to start a family in a couple years and we imagine living tiny for the next 7ish years and then potentially transitioning to another home. We know that many families live tiny with older children, and totally respect that decision, but at this point we don’t expect that to be our path. So that puts a little incentive to jump start our decision and make it happen sooner rather than later!

Lastly, we live in the highest rent area of the country (bay area california, just south of San Francisco) and rent here is astronomical and skyrocketing at a very scary rate. We pay $1500 a month for a tiny, somewhat crappy studio apartment in a great location. Anywhere near 45 from work we’d pay at least that much to rent, so no alternatives really. And rent is likely to go up another $400 this year (last year it went up $300 in another apartment so we moved)! A good reason to get out of the rental market ASAP.

So while we hate the idea of paying interest, when we’ve done a cost comparison in our rental market over 7 years depending on how much we pay for parking, we’d be saving between $10,000 to $100,000! That’s accounting for interest and $100 rent increase per year (which is conservative here). That doesn’t account for other factors like changes in utility costs, home maintenance, gas costs for a longer commute, saving on dining out since we’d be farther out, and more, but it gives us a pretty clear picture of the opportunity. Not to mention, once it’s paid off our additional savings potential. For someone looking at going a lot smaller or to a simpler tiny house model, the savings could be far more significant!

I would never advocate for going into more debt if you’re already struggling to get out of debt and haven’t made a serious financial plan for stability. That is definitely step 1. If that is in place though, it can be the best option for some people.

In a round about way, taking out a loan will lead us to the financial freedom we are seeking!

If you’re planning to finance your tiny home, what are your reasons? How do you plan (or how did you) to do it?

Are there unforeseen negative consequences of taking out a loan on a tiny house?

Stay tuned! Up next: the challenges of actually getting financing for a tiny house on wheels!

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