When you decide to leave the comforts of on-the-grid living, you’re choosing to lead a different lifestyle. It certainly isn’t easy leaving the grid, but it is worth it. It’s a great way to lower your cost of living, and you learn so many new skills as you navigate sustainable living.
An increasing number of people are deciding to go back to their roots and live with the land, using techniques to sustain themselves and not relying on the mainstream life that most people live. One obstacle that those living off-grid have to face, though, is financing.
Traditionally, in a typical suburban home, the owner would be able to finance through a mortgage. There would be plenty of loan options available depending on incomes and budgets. However, this is not the case for many off-grid homes, like tiny houses and other types of homesteads.
Fortunately, there are ways you can pay for your home, even if traditional banks and loans won’t work for you. It is possible to find financing for homesteaders. Below are some tips for financing off-grid living.
What’s Considered Off-Grid Living?
There are different levels of living off the grid. Some people dissociate from society to live in the wilderness and sustain themselves through farming, foraging, and finding water sources. Other people live off-grid because they don’t use a typical means of electricity. However, in general, those who live off the grid desire to sustain themselves in some way and to live a more environmentally friendly lifestyle.
When you live off the grid, you’re often called a homesteader. You create and become utterly reliant on the systems you make, like agricultural, electrical, and other utility lines, like water and sewage. Additionally, you have to find your own heat source and build your own shelter. All of this is done without the help of modern technology and conveniences.
1. Create a Budget (Most Don’t!)
When considering purchasing land, a home, or an off-grid living situation, you need to create a budget. Figure out how much you want to spend on securing your location. Your income and past financial decisions will determine a reasonable budget for your new living situation off the grid. If you don’t already have a household budget, you can start building one now or revisit your budget if you have one.
You may have an estimate of what you’re spending every month, but you likely don’t know the exact amount. Take a month to calculate your expenditures, which can help you visualize where you’re spending your money. As a homesteader, you want to be self-sufficient financially. Budgeting can help you save money when you move off-grid and secure your financial future as you budget for off-the-grid life.
2. (Actually) Cut Back on Spending
One way to finance your off-the-grid lifestyle is to cut back on spending. Each time you spend less, you have more money to put towards your housing. Additionally, you won’t have to rely as much on a lender or other financial institution for your money.
When you go off-the-grid, you are often able to cut back on some everyday expenditures. For example, you will be growing your food most of the time, meaning you won’t be spending money on groceries. Additionally, you’ll be spending more time sustaining yourself, which might mean less time for entertainment. Therefore, the money you might spend now on subscriptions, internet, cable, and smartphones could go directly towards your financing.
3. Pay Off Your Debt
A smart move that homesteaders often make is paying off as much debt as possible before going off-grid. Again, it’s essential to be as self-sufficient as possible, and paying off outstanding debts will help get you closer to financial self-sufficiency. These debts may include student loans, previous mortgage payments, or any other loans.
However, understand that some debts are not bad. Student loans helped you to gain further education, so having that debt is good. It can take a long time to pay off debts, though, depending on how much you still owe. Try to pay off your debts before investing in an off-grid living situation to ensure you can fully sustain yourself and your family using the means available.
4. Know That You Can’t Get a Traditional Mortgage
Off-grid homes do not and cannot qualify for a traditional mortgage. Typically, when you purchase a house connected to the grid, you’re able to apply for a mortgage, and there are usually plenty of financing options available. With an off-grid home, though, it’s more difficult to finance because the bank or lender sees your case as a risk.
They worry that if you would default on your payments and have to foreclose, they wouldn’t be able to find someone to purchase your home and property. Banks don’t want to invest in something that will be challenging to sell later on if you were to move or not make your payments.
5. Use a Local Bank or Credit Union
You may have to do some research to find a bank that is willing to take your case. They would likely take it as a special risk, but that’s better than not having a lender at all. Well-known banks, like Bank of America, will most likely not take on your financial case, even if you have most of your finances invested with the bank. You’ll have a lot more luck with a local bank or credit union.
As more people are taking the leap to live off-the-grid, though, banks will have to start taking these risks and notice that homesteaders are capable of making a living and paying off their homes and property. Besides that, community banks and local credit unions are more willing to invest in the community, which is a highly sustainable effort. Those that work at the local banks and credit unions also live in the backwoods, so they better understand your situation.
6. Understand the 1% Interest Rate Penalty
If you’re able to find a bank or credit union to take your case, then you’ll probably have to pay the off-grid mortgage interest rate penalty. Even if you’re buying at a time when rates are low, you’ll still have to pay an extra 1% for your interest. Because of this, it’s best to buy in a low-rate period. Off-grid properties are not considered traditional homes, which is why you have to pay the 1% interest rate penalty.
That 1% is in addition to the standard market mortgage rate for traditional homes at that time. Therefore, if the rate is 3.7%, you’d have to pay 4.7%. Most homesteaders tend to take on this 1% penalty because they’re not considered a commodity. Your mortgage check will always be payable to a local bank, sustaining the local community and contributing to community businesses.
7. Choose a Shorter-Term Loan
Once you’ve decided if you’re going to pay the extra 1% penalty, you should try to pay off the loan as quickly as possible to minimize your debts. Plus, shorter-term loans typically offer reduced interest rates. Try to secure a 10- or 15-year loan on your off-grid house and property. The shorter the term, the more you will have to pay. The trade-off, though, is that you’ll be out of debt sooner.
If you don’t choose a short-term loan, you can always try owner financing. Owner financing keeps all of the middlemen out of your funding. You deal directly with the previous owner of the property to finance. It’s almost like a rent-to-own situation. If traditional financing and loans seem impossible for you, you can use this as a last resort.
8. Select an Inspector for Financing
When financing for off-grid living, be careful when selecting an inspector. You want to find an inspector who will help you pass inspections on the home so you can go through with financing, but you also want them to be honest with you. If an inspector fails to tell you issues with the home or property, you could be in danger, especially if something is wrong electrically or structurally.
An inspector who thoroughly goes through the home and property can help you get a lower price on the home overall. You could use those items to encourage the owner to move the price down, which helps you with financing and ensures the property is updated and safe to move into. If your inspector dismisses those issues, you’ll be paying the up-front price as well as expenses to fix those issues.
9. Utilize Multiple Income Streams
To pay for an off-grid living situation, you should also utilize multiple sources of income. Many homesteaders use their skills and experience to make a living on their property. For example, if you have a lot of land and use it to grow produce, you could sell your produce for a profit and use that income towards paying off your home and property. Additionally, you can sell meat and dairy products or even begin an on-site fishery to sell fresh fish.
Other income sources may include renewable energy. You can still be hooked to the grid and sell any excess electricity to the grid. You can use that income to pay for your property as well.
Or, turn your hobbies and interests into side hustles so you can improve your financial self-reliance and be able to support your family. Also, if you purchase a property with mineral, gas, or oil interests in the United States, you take ownership of those assets and can sell them for a profit.
10. Choose an Off-Grid Electric System
Some of the off-grid houses you’re considering may not have a current electricity source. While many homesteaders choose to install solar panels or a wind system, it can be expensive depending on your electricity needs. You may not currently have the funds to pay for an off-grid electric system, and that’s okay. When getting a mortgage, you might be able to negotiate the cost of an electric system built into your mortgage.
Financing a renewable energy system and a home simultaneously can cost quite a bit upfront. Combining the two will likely be cheaper than separating your financing. Contact local renewable energy companies to quote how much it would be to install a small system. This applies to your water systems and septic tanks as well, especially if you would need to add them to the property or replace them.
11. Remember Renewable Energy Tax Credits
Once you figure out your financing option for an off-grid electricity system, you should take full advantage of any renewable energy tax credits. Additionally, you can take advantage of these tax credits to expand upon an already existing renewable energy system. These are federal tax credits that you get for the amount of money you spend on the system, including materials and labor costs.
Tax credits are dollar-for-dollar reductions for the amount of income tax you owe. This is a tremendous incentive for those considering going off the grid because, essentially, the renewable energy system pays for itself. Plus, it’s another source of income you can use in your financing. Some states even offer additional credits or incentives for going off-the-grid, so be sure to check on those for your area. The more credits you earn, the less you’ll have to pay out-of-pocket.
Being Financially Intelligent When Going Off-Grid
Whether you’re living off-grid or not, being able to comfortably and confidently finance your home is one of the best decisions you can make. There are obstacles when investing in a homestead, but the trade-off to sustain yourself is worth it.
As more people turn back to their roots and live independently of the grid and modern commodities, more options should be available for financing. For now, it’s up to you to find a bank or credit union that will take you as a special case. Use all of your resources and take advantage of tax credits.
If you want to live a simpler lifestyle, save money, and be completely self-sufficient, then all of the financing obstacles are worth it. Use these tips to make the road to off-grid living more maneuverable.
Author Bio:
Jane is the editor-in-chief of Environment.co. She is passionate about sustainability, gardening and homesteading.
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