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by Christy Bieber | Published on June 26, 2022

Don't buy a tiny home until you read this.

Check out The Ascent's picks for the best mortgage lenders

Tiny homes are typically classified as properties that are 400 square feet or less, although some definitions go up as high as 1,000 square feet. Tiny homes have become a popular option, with an entire tiny house movement, in part because they cost around a fifth or less what traditional properties cost.

Their low price tags may make tiny homes seem even more attractive in this day and age, with mortgage rates soaring and home prices rising rapidly. But if you're considering buying one, there are a few things to think about first. 

Some tiny homes are on wheels or lack a physical foundation and are thus considered RVs. Unfortunately, unlike most real property such as residential homes, RVs usually depreciate in value rather than going up in value. And even if your home has a permanent foundation, reselling it can still be difficult because tiny homes are niche products that not everyone wants to live in.  

As a result, if you're counting on a tiny home to help you build wealth by acquiring a valuable asset, you need to be aware this may not happen. 

Generally, mortgage loan lenders have certain requirements for a dwelling, including a physical foundation. Tiny homes may not meet these requirements. Many lenders also have minimum mortgage limits and tiny homes may fall below that amount. As a result, it can be difficult or impossible to finance your tiny home purchase with a traditional mortgage.

You may be able to get an RV loan, or get financing through a tiny home builder. But the rates are likely to be higher than a standard mortgage loan and you typically won't be eligible for the tax benefits a traditional mortgage offers. 

You'll need to find a place to put your tiny house. Unfortunately, sometimes zoning and building regulations prohibit this type of construction because they have minimum size requirements or other requirements a tiny home cannot meet. 

When you invest in your tiny home, you'll want to protect your investment. Unfortunately, it can sometimes be difficult to find a homeowners insurance policy that will cover a tiny home. You may have a more narrow choice of insurance companies, if you can find coverage at all. 

While you need to be aware of the potential downsides of tiny home purchases, there are also some upsides as well. 

Tiny homes don't cost much to build, so you may be able to pay out-of-pocket after saving up for a few years. You may be able to avoid property taxes if your tiny home is on wheels and your utility bills are going to be a lot lower than if you had a larger property.  You can also put your tiny home on a smaller plot of land, which means buying a lot may be less expensive. 

If these upsides outweigh the potential downsides, including limited storage space, then you may decide you want to move forward with a tiny home purchase. But don't let high mortgage rates scare you into buying a tiny home if that's not really what you want -- otherwise, you could come to regret your purchase a lot over time. Instead, remember that rates are still relatively affordable by historical standards and they could always go down in the future.

Mortgage rates are on the rise — and fast. But they’re still relatively low by historical standards. So, if you want to take advantage of rates before they climb too high, you’ll want to find a lender who can help you secure the best rate possible.

That is where Better Mortgage comes in.

You can get pre-approved in as little as 3 minutes, with no hard credit check, and lock your rate at any time. Another plus? They don’t charge origination or lender fees (which can be as high as 2% of the loan amount for some lenders).

Christy Bieber is a personal finance and legal writer with more than a decade of experience. Her work has been featured on major outlets including MSN Money, CNBC, and USA Today.

We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.

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