I tried to buy a $90,000 tiny home. The bank offered me a “Chattel Loan” (RV loan) at 9% interest, not a mortgage. Because it wasn’t a mortgage, the insurance company wouldn’t write a standard HO-3 homeowner’s policy. They offered a “Stated Value” policy. When the market crashed and I owed more than the house was worth, I realized I had no gap protection.
Key Takeaways
- Tiny Homes are “Personal Property”: Banks view them as RVs (chattel), not Real Estate. You don’t get a mortgage; you get a personal loan or RV loan.
- Insurance Follows the Loan: Because it’s not real estate, you can’t get standard Homeowners insurance (which has huge protections). You get RV/Dwelling insurance.
- Gap Insurance is Vital: Tiny homes depreciate (like cars/RVs), unlike houses (which appreciate). If you total it in Year 3, you might owe $80k but insurance offers $60k. You need GAP coverage.
- Foreclosure is Repossession: If you default, they don’t foreclose; they repossess (tow it away). It happens much faster than house foreclosure.
The “Why” (The Trap)
The trap is “Depreciation vs. Loan Balance.”
A 30-year mortgage assumes the asset goes up in value. A 15-year RV loan assumes the asset goes down.
Insurers generally pay Actual Cash Value (ACV) unless you specifically buy Replacement Cost or Agreed Value.
If you have an ACV policy and a high-interest loan, a total loss (fire/theft) will bankrupt you. The check won’t cover the loan payoff.
The Investigation (My Analysis of Finance/Insurance)
I looked at the financial safety net.
21st Mortgage (The Lender)
- The Product: They finance manufactured/tiny homes.
- The Requirement: They require proof of insurance listing them as “Lienholder.”
- The Gap: They do not always require Replacement Cost coverage. It is up to you to protect your equity.
LightStream / Personal Loans
- The Product: Unsecured loan.
- The Risk: Since the loan isn’t tied to the collateral, you don’t have to insure the tiny home. If it burns, you still owe the $90k. Always insure it anyway.
Strategic Insurance (Gap)
- The Solution: Some brokers offer “Total Loss Replacement” which acts like Gap insurance. It buys you a new tiny home, rather than paying the used value.
[IMAGE: Graph showing the “Depreciation Curve” of a tiny home crossing below the “Loan Balance” line, highlighting the “Negative Equity Gap”]
Comparison Table
| Feature | Mortgage (House) | Chattel Loan (Tiny Home) |
| Asset Class | Real Estate | Personal Property (Vehicle) |
| Appreciation | Likely Up | Likely Down |
| Insurance Type | Homeowners (HO-3) | RV / Dwelling Fire |
| Gap Risk | Low | High |
| Default Process | Foreclosure (Months) | Repossession (Weeks) |
Step-by-Step Action Plan
- Buy “Agreed Value” Insurance: Do not accept ACV. Lock the value at the purchase price ($90k). This acts as your GAP protection.
- Pay Down Principal: Tiny home loans have front-loaded interest. Pay extra early to stay “above water.”
- Check “Lienholder” Clause: Ensure your bank is listed correctly on the policy. If they aren’t, and a claim check is sent to you, you might accidentally spend it and still owe the loan.
- Avoid 20-Year Terms: A 20-year term on a tiny home guarantees you will be underwater on the loan for a decade. Stick to 10-12 years max.
FAQ
Can I refi a tiny home?
Very hard. Most banks won’t touch a used tiny home loan. You are stuck with your rate.
Is the interest tax-deductible?
Maybe. If it meets the IRS definition of a “Second Home” (sleeping, cooking, toilet), you might deduct the interest. Ask a CPA.
Does insurance pay off the loan directly?
Yes. If there is a lienholder, the check is made out to “You AND The Bank.” You sign it, send it to the bank, they pay off the loan and send you the rest (if any).