Off-grid financing

Joshuajayg

Joshuajayg

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Joshua
I will try to keep this thread from being a rant-fest.

I'm under contract on a cabin with solar electric power and a generator for backup. It needs a water well. There isn't a septic tank; there is a composting toilet and the grey water is used to water the trees. It's a great place for someone who doesn't care about being a city slicker.

My problem is almost every lender requires a septic tank and connection to the power grid. The mortgage broker I am currently working with stopped responding to me. Maybe he died, I don't know. We were looking into a Fannie Mae Homestyle loan which is a renovation loan. I was looking at renovation loans for the sake of drilling a well. Another option that showed up was an FHA 203K loan.

Any mortgage brokers or realtors here (or even home owners) who know the requirements of either the 203K or Homestyle loans where it refers to grid power and septic?

The FHA and Fannie Mae call centers said "we don't know, ask your lender."

I'm frustrated, tired, ready to start drinking some beer to lighten up.
 
My understanding is that for a loan to be 'marketable' as a standard residential mortgage, the property has to have those things. Cabins, hunting properties etc. are either a cash deal or financed with other collateral.
 
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Guys in Alaska get cabin financing all the time. Mine was done out of pocket. No mortgage=more beer.

Ask your credit union. They lend for motorhomes and those don't have grid power or septic tanks.
 
Google Tiny house nation financing? Seems to be all the craze these days
 
Stewartb said:
Guys in Alaska get cabin financing all the time. Mine was done out of pocket. No mortgage=more beer.

Ask your credit union. They lend for motorhomes and those don't have grid power or septic tanks.
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I wish the owner would finance it himself but it seems highly unlikely.

I called the local credit unions and they said, "We ain't touchin' that!"

@mulligan , I'll look at it but I don't think a permanent 1080 sq. ft. cabin counts as a tiny home.
 
Hank S said:
Who cares if it's tiny or not? All you want from them is a list of favorable lenders.
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The price doesn't fit in the tiny home category and it isn't a vehicle so it can't be financed as an RV would. As an unsecured loan, it is a max 7 year term with about 14% interest.
 
Why would it be unsecured. You'd own the land, yes? Borrow on that. Better yet, if you own a home with equity, borrow against that.
 
Stewartb said:
Why would it be unsecured. You'd own the land, yes? Borrow on that. Better yet, if you own a home with equity, borrow against that.
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We don't own a home yet. It would be unsecured because anyone who offers a secured loan on a home seems to require central power and a septic system.
 
Joshuajayg said:
We don't own a home yet. It would be unsecured because anyone who offers a secured loan on a home seems to require central power and a septic system.
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It may just have been a broker that was lacking a vision beyond usual residential mortgages. There are lenders that loan on construction land or even unbuildable hunting properties. But they are not part of the usual mortgage origination racket. They have to lend out their own money and service the loans as those loans can't be packaged and re-sold.

Do you have an established banking relationship with a local bank ?
 
weilke said:
Do you have an established banking relationship with a local bank ?
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Yes. We had discussed a land loan in the past and they wanted 50% down. This property would probably be treated the same. I can definitely ask again though.
 
Joshuajayg said:
Yes. We had discussed a land loan in the past and they wanted 50% down. This property would probably be treated the same. I can definitely ask again though.
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I have looked at a land loan before, and it was pretty close to signature loan in conditions. High percentage down, short term with a balloon. Really only feasible if you buy the lot now and convert into a construction loan and eventually mortgage within a year or two.
 
Stewartb said:
Hard to borrow on a second home when you don't have a first, I guess. No offense, but you have your priorities mixed up.
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Isn't he talking about a first home?

Also, if you have to preface what you're saying with "no offense" then odds are your next statement is going to be a cheap shot.
 
You're way outside of the "norm" and the traditional banking system doesn't like non-conformity. They can't repackage your mortgage into a tranche, to make it worth buying, and at today's mortgage interest rates, nobody makes any real money on lending. They make money on lending a LOT of money and pooling risk.

All they see is a super high risk loan with little chance they can sell the place if you default. I suspect that's why you got the lovely offer of 50% down from the one place. They baked out most of their risk up front. They can sell the land to make up the rest.

I think you're going to have hard time unless you were to structure it in a way that you'd be adding on septic and power as part of the requirements of the loan, and even then, they'd still see it as really high risk that you wouldn't complete the project.
 
I would get the renovation loan and install a septic tank. You could always disconnect it if you don't want to use it. It would take a little planning and a little plumbing work, but if you ever want to sell the house, a septic tank may be a prerequisite.

Construction loans are usually very short term and you can only draw on them as construction progresses. And they usually have conditions for rolling the construction into a permanent loan after construction.
 
Land loans typically require a substantial down payment and much higher interest rates. The simple answer is that twofold: government subsidies/guarantees aren't available and the property isn't as easily marketable in foreclosure as a conforming residence would be.
 
Stewartb said:
Hard to borrow on a second home when you don't have a first, I guess. No offense, but you have your priorities mixed up.
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Not what I'm doing. I'm trying to purchase a FIRST home. We live in a basement for $1050/month. I hate situations like this and unfortunately, that's all that seems to be available. We have paid $12,600 for housing and have zero equity to show for it. We plan to live off-grid full time. So the only priority I may have screwed up is not buying an airplane first. :blueplane:

denverpilot said:
You're way outside of the "norm" and the traditional banking system doesn't like non-conformity.
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That is what I have found to be the case. Non-conformity. Story of my life. Haha. The place is very marketable to a large group of people these days but the vision of the lending institutions has not caught up with that. When speaking to the realtor months ago, she got a phone call about the property I'm under contract on. Turns out they get daily calls on it but the problem is financing. So the market is there but the lending has not caught up.

JOhnH said:
I would get the renovation loan and install a septic tank. You could always disconnect it if you don't want to use it. It would take a little planning and a little plumbing work, but if you ever want to sell the house, a septic tank may be a prerequisite.
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I have been looking at renovation loans and that is what the 203K and HomeStyle loans are. I think the problem with them is they will still require power which is four miles away. If I could swing a HomeStyle loan, I'd put a septic tank in and deal with it but I can't justify hundreds of thousands of dollars to add a power line to the place if I could even swing the easements. I don't want the power lines either. That's part of the joy of living there.

cgrab said:
Have you checked with Farm Credit. They would probably be more familiar with your situation.
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I'm in contact with a farm credit lender who does this kind of lending. Even their requirements include septic and some pretty harsh rates.

I appreciate the input guys...
I've spent hours on the phone with many different lenders. I'm just hoping someone knows of a lender that knows off-grid properties and has terms in line with their actual value in this generation.
 
One of my best friends lives 100% off-grid. He purchased the house from his parents, who ended up financing it. There was no loan available from a normal bank or other source. He's been paying them. Alaska or some other areas like that might be different, but in most of the lower 48 it's hard to get financing for these sorts of situations. You might have to get creative and figure out other items you might be able to borrow against for the property, or see if you couldn't figure out some way to get an owner-financed situation.

Something else to consider is whether or not you can get homeowner's insurance. My friend cannot. This is a personal consideration of whether or not it's a risk you want to take. I probably wouldn't worry about it much, but just a consideration.
 
Ted DuPuis said:
One of my best friends lives 100% off-grid. He purchased the house from his parents, who ended up financing it. There was no loan available from a normal bank or other source. He's been paying them. Alaska or some other areas like that might be different, but in most of the lower 48 it's hard to get financing for these sorts of situations. You might have to get creative and figure out other items you might be able to borrow against for the property, or see if you couldn't figure out some way to get an owner-financed situation.

Something else to consider is whether or not you can get homeowner's insurance. My friend cannot. This is a personal consideration of whether or not it's a risk you want to take. I probably wouldn't worry about it much, but just a consideration.
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Yeah, owner financed would be perfect and I am surprised he hasn't been too interested in it yet. He lives in Holland so that may be one of his apprehensions. They also had some very bad "renters" and "caretakers" who trashed the place so they are a little nervous to allow someone to live in it without having all their money in hand.

This property has been on the market for over a year and a half. I could finance the water well and hand him a good down-payment if he would agree to a ten year loan.

Insurance? Meh. Just don't burn it down. Shoot the neighbor if they burn it down. Pretty simple solutions.
 
Joshuajayg said:
The place is very marketable to a large group of people these days but the vision of the lending institutions has not caught up with that. When speaking to the realtor months ago, she got a phone call about the property I'm under contract on. Turns out they get daily calls on it but the problem is financing. So the market is there but the lending has not caught up.
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I think this sounds like a great idea. But since it is non-conventional, you will have to get creative, and creative with regards to financing always means higher interest rates.

If you lived near me where I could keep an eye on the place, I would consider financing it for you, but I would need at least 10% interest, and I would probably ask for a balloon payment in no more than 10 years. That would give you time to find other financing, or to save up for the payoff. I only mention this to give you the idea of searching out private money, which is usually referred to as "hard" money. Not because it is difficult but because they deal in hard cash.
 
Joshuajayg said:
Yeah, owner financed would be perfect and I am surprised he hasn't been too interested in it yet. He lives in Holland so that may be one of his apprehensions. They also had some very bad "renters" and "caretakers" who trashed the place so they are a little nervous to allow someone to live in it without having all their money in hand.

This property has been on the market for over a year and a half. I could finance the water well and hand him a good down-payment if he would agree to a ten year loan.

Insurance? Meh. Just don't burn it down. Shoot the neighbor if they burn it down. Pretty simple solutions.
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If he lives in Holland, he may not understand what is typical for financing over here. I can understand his apprehension of financing to someone, especially if he's had bad luck in the past. Your best bet might be having a conversation to explain the avenues you've explored, what you've found (and that the financing issues have to do with the property itself, rather than your finances), and try to convince him that you're a solid person who will pay the bills. A 10 year note would also be pretty attractive if I were financing. You probably would also have to agree to an interest rate that would make it appealing to him, so likely higher than you'd pay a bank.

You didn't say what part of the country this is in, but if the off-grid aspect ends up being too difficult, is it possible to find something on-grid with a similar setup? We live on 11 acres in the middle of farm country. I think we have the best of both worlds. All our neighbors have plots of a similar size (or larger) so we have nobody nearby. But, we are on grid with on grid water and electricity and I manage to be about 30 minutes door-to-door for work, and about 30 minutes for a lot of our trips to town. No problems getting financing or insurance, although our insurance is a bit higher since we're not near a fire hydrant. It really gives us the best of both worlds. We almost have the off-grid lifestyle and feeling (specifically living without noticing our neighbors) but we have the conveniences of not having to maintain our own grid. We also have a backup generator, which works great. I'd love to add solar at some point (and probably will) but just haven't gotten there yet.

Incidentally, my friends wrote a book recently that may be of interest, although I think your setup would be a lot more advanced than theirs:

https://www.pilotsofamerica.com/com...rs-ago-today-my-life-in-the-mountains.100402/
 
Have you talked to the owner about a rent to own situation. Say pay the rent but put part of it in escrow along with another sum from you to be given to the owner after a period of time. Stipulate that if it falls through the escrow is split so the owner would get his full rent and some additional amount to compensate for taking it off the market. You would get the rest. Once the escrow reaches a total which is less than the asking price (because after all, he is getting rent payments) the deed goes to you and the escrow goes to him. It may cost you a bit more if he won't come down on the price but I would think he is protected and would agree.
 
One issue a friend has come across is the influence of the local government and utilities. She's trying to build a off grid tiny house and keeps running into anti competition type clauses in Utility contracts. The local government says she has to be connected to the power grid because it's unfair for the utility, if she's not.

She also is having trouble finding more financing like yourself because the local bank agrees with the local government. So to get a loan she has to make the house "livable" by government standards. She said something about a high minimum square footage, septic tank, and power from the grid to start.
 
Owner financing, rent to own, etc. isn't interesting to him and his woman mostly because they are in the process of building their own home in Holland and want the chunk of cash now. We are discussing a rent contract for the two months it takes to finalize the loan once I move to the new state and start work there (in Utah.)

The power, pooper, and water situations are all legal per the county's requirements. The gov't doesn't seem to have a problem with an outhouse as a pooper and no septic tank. They are starting to allow composting toilets which is our in house pooper plan.

So I started looking at FHA requirements. What I found states that solar electric power is allowable as long as it is used to power the residence. Also, whatever is legal to the local gov't for plumbing is fine for their lending.

So maybe an FHA 203K loan will actually be useful. I can use the renovation monies to drill a well, and install a pump and storage tank. Their terms are 4.5% interest and a minimum of 5% down. Now if only my mortgage broker would return a single call, email, or smoke signal.
 
Depending on how much you need, you could go with a personal loan. Interest rates are going to be higher (5-7% and limited to about $100K or less), but if that gets your construction done, you can refinance at that point and pay off the personal loan.
 
This may be so obvious that you have already done it, but there is a vibrant off-grid culture out there. Have you checked for Facebook groups, magazines, web sites, etc. through which you might find people and ask your question? I agree with your overall gist, that someone, somewhere, must have cracked the code on this.
 
airdale said:
This may be so obvious that you have already done it, but there is a vibrant off-grid culture out there. Have you checked for Facebook groups, magazines, web sites, etc. through which you might find people and ask your question? I agree with your overall gist, that someone, somewhere, must have cracked the code on this.
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The 'code' is that most people interested in off-grid properties have other collateral like stock portfolios or commercial real estate they can pledge.
 
weilke said:
The 'code' is that most people interested in off-grid properties have other collateral like stock portfolios or commercial real estate they can pledge.
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I don't know that to be true. Maybe it is. Reference?

The two seriously off-grid couples that I know are not wealthy.
 
airdale said:
The two seriously off-grid couples that I know are not wealthy.
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They may have funded the switch to the lifestyle with cash, and not a loan. You should ask them. Might be interesting.

I've met both types. Debt driven and debt free. Not just in off-gridders but also in traditional housing.

Debt free at $0 net worth, is still significantly better than debt-driven at -$250,000 or more. Society may think you're broke looking at your lifestyle at the former, while think you're doing great at the latter.
 
Joshuajayg said:
Owner financing, rent to own, etc. isn't interesting to him and his woman mostly because they are in the process of building their own home in Holland and want the chunk of cash now.

So I started looking at FHA requirements. What I found states that solar electric power is allowable as long as it is used to power the residence. Also, whatever is legal to the local gov't for plumbing is fine for their lending.

So maybe an FHA 203K loan will actually be useful. I can use the renovation monies to drill a well, and install a pump and storage tank. Their terms are 4.5% interest and a minimum of 5% down. Now if only my mortgage broker would return a single call, email, or smoke signal.
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Give Mike a call or email. As a direct lender, they might be able to help. He did a great job on my new house financing.


https://michaeljewell.annie-mac.com/
 
denverpilot said:
They may have funded the switch to the lifestyle with cash, and not a loan. You should ask them. Might be interesting.

I've met both types. Debt driven and debt free. Not just in off-gridders but also in traditional housing.

Debt free at $0 net worth, is still significantly better than debt-driven at -$250,000 or more. Society may think you're broke looking at your lifestyle at the former, while think you're doing great at the latter.
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Then you have folks in positions where they could pay off 100% of their debt (with plenty leftover) but choose not to because the interest rates compared to the returns they're getting from investments make the loans more logical. Originally we were going to pay off our mortgage on this house much faster than the initial schedule. We may still do that at some point, but we're getting much better ROI from investments (especially when you factor in the tax deduction for the interest), so it just doesn't make much sense.

There's also the benefit of having cash at your disposal to be able to make some great purchases, etc.

However, like airdale, folks I know off-grid are not rich by any means. From what I can tell, you have two types - the folks that really don't have much money and the ones that are able to throw $100k+ out of pocket towards making their off-grid oasis the way they want it. If you're in the latter category, then obviously you can have a much nicer home. But you don't have to be in that category to do it
 
My intent in post #28 was simply to point out that there are folks who have walked the OP's path before and maybe they could help.

I really didn't intend to drag the thread OT to discuss The Millionaire Next Door. I think that subject has been done here before.
 
airdale said:
My intent in post #28 was simply to point out that there are folks who have walked the OP's path before and maybe they could help.

I really didn't intend to drag the thread OT to discuss The Millionaire Next Door. I think that subject has been done here before.
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The people I know that are truly off-grid because they want that lifestyle aren't terribly wealthy. Most of them built what they have when they had the time and money. One couple rents the property so they can do an organic farm. Then there is one old lion hunter I know in west New Mexico that probably made his money in a less-than-legal way and built his log cabin with his own hands. He may have been the only one I know that had any significant amount of wealth when he started.

I'm in the debt-free, almost zero net-worth category. My wife and I purchased our last car (used) with cash. We live within our means and have been able to start putting cash away at a decent rate. We are responsible and capable, just fresh into this kind of market. We have a lot to learn.

I found the FHA checklist and lending handbook so now I have a good idea of what needs done to the property to finance it. They don't care about off-grid which is surprising since it is a federally insured loan.
 
Do you have anything of value that could serve as additional collateral? Wife and I bought a chunk of undeveloped land, and built a garage with an apartment over it in 2009-10. Of course that was right in the thick of lots of new and tighter lending guidelines and since none of what we were doing fit the "conventional" path, we struggled for a bit with figuring out financing.

The path we took was a bank loan on the land, secured by the land... Rolled that into a construction loan for a year... Finally rolled it all into a 5 year bank note with payments amortized over 30 years. That loan was secured with the land/garage apartment, plus some stocks we had. That loan matured this past year and luckily at that point our situation had changed such that we needed a much smaller loan on that property, which made it easier to find a suitable loan.

Good luck with your adventure. We found few friends/family who seemed to fully support our idea that we didn't necessarily need to buy a $80k house as a "starter home" knowing full well that we'd want to move or substantially improve the house in a couple of years.
 
SaltH2OHokie said:
Do you have anything of value that could serve as additional collateral?

Good luck with your adventure.
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Not really much for collateral otherwise this would probably be a lot easier.

Thanks! It is an adventure. We are under contract until May 1 so it isn't going to drag on forever. Either we figure it out or we are out our earnest money and have to wait until we are in a better situation.
 
This thread got me interested. I thought about building myself a small place in a rural area I know by the St. Johns River. But I found that it is illegal. You would not be able to get a Certificate of Occupancy unless you have running water and power. Same goes for Texas and I don't know how many other states. Its a shame.
 
Joshuajayg said:
... I'm in the debt-free, almost zero net-worth category. My wife and I purchased our last car (used) with cash. We live within our means and have been able to start putting cash away at a decent rate. We are responsible and capable, just fresh into this kind of market. We have a lot to learn. ...
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I beg to differ. Not zero net worth. Within your net worth calculation you have an inventory of wisdom that many people will never have. I congratulate you. I won't wish you well, because that is a given with the wisdom you have attained.
 
JOhnH said:
This thread got me interested. I thought about building myself a small place in a rural area I know by the St. Johns River. But I found that it is illegal. You would not be able to get a Certificate of Occupancy unless you have running water and power. Same goes for Texas and I don't know how many other states. Its a shame.
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Yeah, it is a shame... but if you are far enough away from the public, no one will know or care. Also, in most places if it is a "temporary" dwelling, you don't need a certificate of occupancy. Temporary usually means less than four months a year.
 
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