Races through the smallest room in house (5)

I believe the answer is:

lotto

I'm a little stuck... Click here to teach me more about this clue!

'house' is the definition.
(I've seen this before)

'races through the smallest room' is the wordplay.
'races' becomes 'tt' (Isle of Man Tourist Trophy races).
'through' indicates putting letters inside (inserted letters go through the word).
'the smallest room' becomes 'loo' (loo is a kind of room. I am not sure about the 'smallest' bit.).
'tt' placed inside 'loo' is 'LOTTO'.

'in' acts as a link.

Can you help me to learn more?

(Other definitions for lotto that I've seen before include "Venetian painter - gambling game" , "Game of chance involving balls" , "National gambling game" , "Game like bingo" , "gamble" .)

I've seen this clue in The Guardian.

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