In the long term, living off-grid will save you money; however, getting everything you need to replace the standard utilities is likely to be expensive. To afford this, you may be considering getting a loan or even a mortgage.
Getting a loan for an off-grid home can be challenging. It’s unlikely that a large bank will accept your application, but credit unions often have off-grid options. You’re likely to be charged an extra 1% on the interest rate, so it’s helpful if you have savings or can opt for a shorter repayment period.
Let’s take a closer look at the factors involved in getting a loan and how easy it’s likely to be.
Do you need a loan for an off-grid home?
Unless you have a substantial amount of money saved to finance the new build of an off-grid home or to convert your existing home, you’ll need to find the money to do so. Getting a loan is the obvious first choice in financing this step.
It’s likely that you’ll need a mortgage but you may also need a smaller loan as well. Some of the things that may require a large initial payment include:
- Purchasing a property or land
- Building your home
- Buying and installing solar panels, inverter, charge controller and battery bank
- A backup generator
- Woodfired heating systems
- Replacing your old appliances with new low power or propane versions
- Purchases needed to get your yard set up to produce food
- Buying and installing a septic tank system
- Mony for any building permits or legal advice
- Initial payment of tax and insurance
- Courses and training to learn some of the skills you may need
Related reading: How much money do you need to go off the grid?
How to get a loan for an off-grid home
If you plan to get a loan for an off-grid home, you might run into trouble within just a few days. Banks generally see this type of investment as high-risk and low-reward.
Some banks fear that if the owner of an off-grid home ends up defaulting, the property will have no chance of reselling because it’s not connected to the usual utilities. They’re also concerned that you might give up on off-grid living and stop paying your mortgage because of the drastic lifestyle change.
While these are all roadblocks, it’s still possible to get a loan. It just takes careful planning and a lot of work on your part.
Related reading: Off-grid home insurance – Is it more expensive?
You must have good credit
As with any other loan, much of the banks’ decision will rely on your credit score. A credit check is always one of the first steps in getting a loan. Having good credit is essential. Your credit score will determine whether or not you are even eligible for such a loan, as well as aid the bank in assigning the interest rate that will come with your mortgage.
You need an income
Having an income demonstrates that you will have the capacity to repay the loan in the future. This may seem self-explanatory, but many people who want to go off-grid don’t have a standard 9 to 5 job. Even if you do have an income, but you’re self-employed or freelance, you will need to have a way to demonstrate that you will be able to pay it back.
The best way to do this is to show a regular income over the past few years or a good credit rating. This proves to the bank that you’ve previously been able to make payments and are likely to again.
If you don’t have a standard or regular income, you may still be able to get a loan, but it will be challenging. To do this, you will need to show that you have or will have enough assets to make the repayments comfortably.
Appraisal and risk assessment
As we mentioned before, off-grid home loans fall into a category of a risk factor for many banks, which calls for an additional upcharge in the interest rate. This is not necessarily a penalty, but rather, further assures the bank that even though they are going for this risk.
They are doing all they can to avoid any problems. Not to mention, your appraisal will cost much more for quoting the price of land or house in an off-grid area. But, knowing this before you attempt to get a loan allows you to prepare and save enough, as well as avoid the surprise of feeling like you’re paying more than you should be.
The numbers for the interest rate and additional charge for risk factors will vary, but loans for off-grid homes are often charged at least 1% more than the standard rate. Ashley and her husband from Practical Self-Reliance were surprised at the increased rates they were offered when trying to get a mortgage to buy an off-grid property.
However, to ensure that things worked out favorably, they did two things:
- They chose a short term loan, which increased the monthly payments but reduced the interest rate.
- They started out with a lump sum of savings so they could keep the loan as small as possible.
- They avoided the big banks and approached credit unions with local branches that were used to providing off-grid mortgages.
Other things to note
While you may be fully committed to living off-grid now, plans change. And this is, of course, one reason that banks are hesitant to do these types of loans. Some lenders like you to get a quote for your home to be reconnected to the grid. This doesn’t mean that you must reconnect, it’s so that they can consider the cost if they ever need to resell the house.
Another option is to connect to the grid but leave the connection inactive. This is a more expensive investment upfront because you are paying to use a support system for utilities that will not be present in your home. However, it could make a significant difference to any future loan applications.
Related reading: Will taking my home off-grid destroy its value?
If you want to buy or build an off-grid home, the loan process will be different to that of a regular home. Banks see these loans as riskier, so some won’t offer you anything, and others will increase the interest rate.
However, if you’re prepared for this, you can still get a good deal, particularly if you have savings, a regular income and opt for a shorter term.
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