When my husband and I found our forever homestead, we had saved a sizable nest egg, but nowhere near enough to purchase it outright. We were in our 20’s and had no intention of waiting until we were middle-aged to start living the life we’d dreamed.
Taking on debt is never an appealing prospect, and we’re both opposed to it in principle, but we were willing to make an exception for a mortgage. We hadn’t planned on moving off the grid, but as we searched for property, we didn’t have much luck with traditional properties. The only affordable properties were off the grid.
If we could find a way to make a stable, full-time income off-grid then we could change our lives and circumstances now, not 20 years from now.
In all our dreaming and scheming, we didn’t know about the particular difficulties of financing off-grid property.
An off-grid home cannot qualify for a traditional mortgage, and the financing has to take place outside of the traditional fannie mae or freddy mac financing system. You have to find a bank that’s willing to take your case on as part of a special risk portfolio.
They’re worried that if you default, they’ll have trouble finding a buyer for something other than a cookie-cutter house in the suburbs.
As a result, things aren’t quite as straightforward and it can be tricky to find a bank willing to finance.
Off-Grid Mortgage Interest Rate Penalty
The biggest surprise trying to find mortgage financing for off-grid property was the interest rate. We were buying when rates were absurdly low, around 3.5%. By all accounts, that’s the ideal time to finance anything.
Financing off-grid property is not quite so straightforward. Since off-grid property doesn’t qualify for a traditional mortgage, it also doesn’t qualify for traditional interest rates. It seems that the standard practice is to charge a 1% penalty for a “non-conforming” mortgage.
We heard that from every bank that was willing to talk to us. If we wanted to finance off-grid property, we’d have to pay 1% above the going market rate.
Benefits of a Non-Traditional Mortgage
So while I was cranky about the 1% interest rate penalty for a non-traditional mortgage, my husband was happy to pay the premium. Why? Since we weren’t applying for a traditional mortgage, we weren’t going to be a commodity.
A “portfolio” mortgage is something that a bank chooses to take on at its own risk. They cant sell it on the open mortgage market.
Bank of America or some other global conglomerate would never buy our mortgage. My mortgage check would always be payable to the bank down the street.
After watching all the big bank horror stories in the mortgage crisis, we were happy to be out of the commodity mortgage market.
Find a Credit Union
Big banks didn’t want to talk to us. But honestly, I didn’t much want to talk to big banks as I mentioned above. Bank of America and Wells Fargo have had their share of scandals with consumers, and in the long run, it pays to keep your money local.
We found multiple different credit unions had options for off-grid home loans, and they were eager to take us on as a risk. When you live in the backwoods, the people manning the mortgage desk at the local credit union also live in the backwoods. They understand where you’re coming from, and don’t bat an eye when you say it’s off-grid.
Consider a 10 or 15 Year Loan
If you’re going to pay an extra 1% penalty, you might as well try to pay off that loan as fast as you possibly can. Shorter-term loans, with a 10 or 15-year duration, actually offer reduced interest rates too.
At least when we were financing, a 15-year loan charged on average 1% less than a 30-year loan. A 10-year mortgage was even less, but we couldn’t quite swing the higher payment.
With a shorter-term loan you end up paying a higher payment up front, but much less interest in the long run. Since the interest rate is also lower, it’s a great way to make up for that 1% off-grid interest rate penalty.
Try Owner Financing
Around these parts, there are plenty of owners willing to commit to owner financing. Perhaps it’s a desire to keep all middlemen out of the transaction, but that live free or die spirit lives on.
That wasn’t an option in our case, and honestly, I was glad. I’d rather cut ties altogether with the former owner and have any dealings on the property be my business. It’s irrational perhaps, but to me, owner financing seems too much like a rent-to-own situation with a landlord.
Nonetheless, there are countless for sale by owner signs on back streets with a note saying “owner financing available.” If for some reason traditional financing won’t work, perhaps the previous owner will work with you.
Get a Quote to Go on Grid
Some of the banks we talked to wanted us to show them a quote for the cost of going on the grid. It’s not that we were planning to go on the grid, but it was one of their requirements.
They wanted to be sure that the house and land appraised for at least the combined total of the purchase price plus the cost to connect to the grid. That’s an insurance policy for them if we default.
It’s also a good thing to have in your pocket. Though it’s never something to wish for, at some point the costs to repair some portion of the solar system may be higher than the cost to go on the grid.
It depends on your specific circumstances and how far you are from the nearest power pole. Having a total cost can be useful for planning, even if you plan to never use it.
Be Careful Selecting an Inspector
Picking a home inspector is a tricky prospect. You want the home to pass inspection so that you can get financing, but you also want to know what’s potentially wrong with the home. Our inspector advertised that he was an engineer in a former career and that he knew about solar.
He “inspected” the house and passed it with flying colors, which was great for financing, but not so great in the long run. The electrical system was horribly and dangerously not to code, with open wires everywhere. The entire battery bank died within a month of our move-in date, and batteries aren’t cheap.
If we would have seen all these things in the purchase process, we could have used it to get the previous owners to move on the price. Instead, we got relatively quick financing but had huge expenses in repairs after the fact.
Would we do it again?
At this point, we have no regrets. We’re 5 years into a 15-year mortgage, and we’ve put every extra penny we could scrounge into it. With luck, we’ll have it fully paid off in 6 or 7 years, before our oldest child’s 10th birthday.
For now, we’ve moved into “semi-retirement” as our fruit trees grow and establish, still working quite a few hours to make a full-time income off the grid. They’ll be at bearing age right around the time we retire to tending them full time.