"It was terrifying and I immediately called 111," she said.
"When I looked over I could see everyone seemed to be out of the house but it was really scary, as the burning house is so close to my back deck.
"I didn't know what to think but I knew a family was living there.
"I could see a young girl, aged about 12 or 13, standing with a guy and a woman on the road.
"She looked like she was in shock," she said.
"It was really frightening, as we [she and her children] were sleeping in the lounge to keep warm.
"It's terrifying to think the fire could easily have jumped the fence and reached my house.
"It's so sad. Yesterday it was a nice house and now look at it, today it's in bits," she said.
Greerton fire service Station Officer Neil Brown said the tenants were lucky to escape uninjured.
"The tenants were alerted by working smoke alarms, which is fantastic news for us.
"It's the message the fire service is constantly trying to get across to people. When you're sleeping, you can't smell smoke," Mr Brown said.
After dousing the flames, a fire crew stayed at the house for several hours, removing key debris and checking for hotspots.
Tauranga fire safety officer Ken McKeagg said the exact cause was yet to established, but his inquiries centred on a log burner and the possibility clothing may have been left too close to it for an extended period.
The kitchen, lounge and dining area were gutted and the rest of the ceiling boards above those rooms were also largely gone, he said.
"A lot of the roof structure is pretty much shot and there is also a lot of heat and smoke damage in other parts of the house, which means the house has pretty much been destroyed." Mr McKeagg said the family were alive because they had working smoke alarms.
The family, believed to be Tongan, declined to comment.
A Housing New Zealand spokesperson confirmed the house was a state rental, and said the corporation would put the family up in motel in the short term and then move them into another of its properties.
