After three years of traveling in my camper van and then attempting to adapt to a global pandemic, I decided to move forward with my ambition of establishing a farmhouse by purchasing an off-grid home on five acres with my fianc. I had no idea how many roadblocks there would be in the way of realizing my dream. As a result, I produced this piece to explain what I’ve learned about funding an off-grid home.
Because I work entirely from home, going off the grid (and into the middle of nowhere) was a terrific way for my partner and me to save money.
Originally, we envisioned purchasing land and constructing a tiny house since we believed it would be the most cost-effective alternative.
However, I rapidly discovered a slew of legal and financial roadblocks to my ambition of living in an off-the-grid tiny house.
Things to know if you are considering getting an off-grid tiny house:
- Tiny house rules and laws vary by state, county, and subdivision in the United States, and include:
- needing the use of a septic tank or being connected to the sewage grid (which means you can’t use a composting toilet)
- Tiny houses aren’t cheap; they can cost anywhere from $35,000 to $100,000 if they’re already built, and at least $15,000 to $30,000 if you build them yourself (and none of that cost includes land OR a septic system if required by your local ordinances)
- Tiny Houses don’t appreciate in value, therefore they’re not a good investment if you need to sell them in the future.
In my video Why I Bought an Off-Grid House, I go into some of the challenges and loopholes (Instead of a Tiny House). In the video, I also discuss how we demonstrated our income as freelancers in order to get our mortgage approved by the bank.
So, after considering all of these challenges, we chose to purchase a tiny pre-existing off-grid home in order to follow our ambition of becoming self-sufficient while lowering our living costs.
Then we realized that getting financing for an off-grid dwelling isn’t easy, either.
Getting a Mortgage and Financing an Off-Grid House
First and foremost, you should be aware that major banks like as Chase, Bank of America, and Wells Fargo will not lend money to those who live off the grid.
However, I would argue that using a local bank is healthier for the environment and your community. Banks like Chase have a long history of investing in fossil fuels, while community banks invest in the community. Chase has put $268 billion into the fossil fuel business alone. Check out my post on socially responsible banks to learn more about ethical banking.
A home that is off-grid is defined as one that is not connected to the electrical grid via powerlines, but it also includes homes without “running water.” In essence, banks perceive it as a risk because if you default on your payments and have to foreclose, the bank does not see the property as an easy-to-sell investment.
Local and community banks and credit unions, which will review off-grid loan applications on a case-by-case basis, are your best hope for acquiring finance for an off-grid home.
Non Traditional Home Interest Rate Penalty
Because off-grid homes are not considered regular residences, you will have to pay an interest rate penalty if you locate a bank willing to take on your off-grid home as a special risk investment.
The standard interest rate penalty for a home mortgage at the time is 1% above the current market rate.
Shorter Term Home Loan
I propose having a shorter-term mortgage because you will be penalized by the bank with a higher interest rate if you finance an off-grid property. A mortgage with a term of 10 or 15 years will have a lower interest rate than one with a term of 20 or 30 years.
You will be able to pay off your property faster if you choose a shorter-term home loan. It’s crucial to note that while this will raise your monthly payments initially, it will save you a lot of money in the long run by helping to offset the off-grid penalty and reducing your interest rate.
We ended up receiving a 15-year fixed-rate mortgage with a 2.6 percent interest rate (that includes the 1 percent penalty).
We also went with a fixed mortgage because interest rates were so low when we bought our house, and it ensures that our rate will never rise, even if the market changes.
Getting an Off-Grid Electric System Incorporated Into A Mortgage
If you’re looking at an off-grid house that doesn’t have a current energy source and don’t have the finances to install a solar, wind, or hydro-electric system, you might be able to include the cost of an electric system into your mortgage.
Financing a solar or wind energy system can be costly, and depending on your mortgage interest rate, it may be more cost-effective to include this system in your house loan than to finance it independently.
Our house did not have a renewable energy source when we put a bid on it. The previous owners relied on a gasoline generator to get by. So we called a local renewable energy firm for a price on how much a solar electric system for our energy demands would cost.
We then factored that expense into our mortgage. Because we were able to negotiate this expense and the bother of doing it ourselves into our lower offer, we were able to purchase the house for considerably less than it was listed for.
Basically, our offer said that we would buy the house for “x” dollars and use “y” dollars to create a solar power system (meaning the bank pays for it and that money does not go to the seller).
Even if you don’t want your electric system to be included in your loan, it’s a good idea to get a quote so you know how much to budget for it before you make an offer on an off-grid home that doesn’t already have a reliable supply of power.
Septic tanks, water systems, and wells are all examples of this principle. If the house you’re interested in doesn’t have any of the essential necessities, I’d get a quote first and make sure the expense of installing them is factored into your offer price.
Is it possible to get financing for an off-grid home?
We had no idea, in all our planning and fantasizing, of the unique challenges of financing off-grid property.
An off-grid home will not qualify for a regular mortgage, thus financing will have to be done outside of the fannie mae or Freddie Mac system.
You must locate a bank ready to accept your case as part of a unique risk portfolio.
They’re scared that if you default, they’ll have a hard time selling anything other than a cookie-cutter property in the suburbs.
As a result, things aren’t quite as clear, and finding a bank prepared to finance can be difficult.
Are you able to fund an Earthship?
Obtaining Earthship home finance is a difficult task. Because there are few (if any) comparable sales in the area, most lenders will not grant you money for these types of homes. In other words, lenders have no means of knowing how much a home is worth. Many people must pay cash to purchase or refinance an Earthship residence. But what if you can’t afford to spend your entire savings account?
What is the definition of a rural home loan?
The Country Home Loan program aims to encourage rural development by allowing rural inhabitants to finance the purchase or refinance of rural homes, land, or lots, as well as modifications to a home or property in the country. The rural house loan program was created to provide rural communities with financial options for rural homes that many lenders are unable to fund.
Other agricultural commodities include vineyards, orchards, nurseries, woods, conservation lands, and other agricultural commodities.
Is it possible to live off the grid in Nova Scotia?
In Canada, living off the grid is not illegal. Solar power may be used to power your home, and you can grow your own food, among other things. National construction codes, on the other hand, must be followed.
Is it possible to live off the grid in Maine?
Off-grid electricity is permitted in Maine, and the state offers a variety of incentives to encourage residents to switch to renewable energy sources. The following are some of the incentives:
Larger solar energy systems in Maine will require a permit, but the process is often straightforward.
Permits for hydroelectric and wind power are more difficult to obtain.
Is it possible to finance a yurt?
If you’re planning to build a yurt on fresh land, another option for funding your circular housing is to take out a loan for the land. Keep in mind that some banks and banking organizations may be hesitant to lend to yurts because they aren’t yet considered permanent structures. Most financial organizations, on the other hand, will lend you money for the land where the yurt will be built, but you must be upfront about how you want to use it. You’re free to build the yurt of your dreams on your lovely new land after you’ve been approved.
Countrywide Home Loans: What Happened?
Bank of America paid $4.1 billion for the insolvent Countrywide Financial in 2008. In 2006, Countrywide financed 20% of all mortgages in the United States, at a value of about 3.5% of United States GDP, a proportion greater than any other single mortgage lender.
Is it necessary to obtain a permit in order to construct a cabin in the woods?
You can buy existing cabins in US national forests, but you can’t build a new one without the government’s permission. Citizens could build cabins on particular parcels of public land under the RRP.
Is solar energy a good investment in Nova Scotia?
With regard to power pricing, Nova Scotia is one of the best provinces for solar higher prices indicate greater savings potential.
The average total cost of electricity in Nova Scotia is $0.171/kWh based on a monthly usage of 1,000kWh (this number includes both fixed and variable costs).
This figure is greater than the national average of $0.138/kWh (excluding territories), indicating that property owners in Nova Scotia may save a lot of money!
(Our Electricity Prices page has methodology and data for other provinces and territories.)
Where in Canada can you live for free?
In recent years, it has been fashionable in certain small Canadian towns to give away large amounts of land for free or at a low cost.
ALSO READ: 12 Unusual Places Around The World You Must Visit Before You Die
The entire point of the strategy is to assist shrinking communities in regaining their footing – anyone can be given property for free as long as they are prepared to show up and care for it (with a few extra conditions, of course).
The idea isn’t new; the federal government used to have a similar policy in the 1920s. It worked back then, and it appears to be functioning now as well. These ghost towns began to rapidly expand in population just a few years after they were put up for sale.
In this context, the word “free” should be used lightly because, as we all know, nothing is actually free. All of the towns’ requirements, on the other hand, are acceptable, and the trades themselves are almost free.
These 9 Canadian communities may still be giving away land for free or cheap, despite the fact that there are no current updates on these locations: