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Financing an Off-Grid or Earth Sheltered Home

Updated: May 11, 2022

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I’ve wanted an off-grid underground house for as long as I can remember. Most people give me an odd side glance when I say that—including my husband, who lifted an eyebrow and looked at me like I’d lost my wits.

But when we started looking for land to buy, we stumbled upon a listing for an earth sheltered home and made an appointment with the realtor just for fun. That “just for fun” showing turned into a second visit to the unfinished earth berm home and ignited a fire in my husband that matched my own.

We wanted an underground house and were determined to buy one.

Part of the appeal was the energy efficiency of a house that’s protected by earth on three sides as well as the roof. But we also loved the idea of the low-maintenance exterior (no more shingles blowing off in a windstorm or dented siding from golf ball-sized hail!).

When we learned that we would need cash or some kind of alternative financing to purchase the unfinished home, we were shocked, to say the least. Here was a solid shell of a home with 9-inch-thick concrete walls and a roof that could support a tractor, and no banks would consider granting a traditional mortgage.

We could only get funding for the value of the land—and even that would require 25% down and a higher interest rate than a conventional mortgage.

We didn’t end up buying that particular earth sheltered home, but we didn’t give up, either.

We simply adjusted our goals, started discussing ways to make our dream of living off the grid a reality, and found a piece of land we liked even better that we could use as a blank canvas to build our dream home.

We considered different options for this dream home: underground earth sheltered, bermed earth sheltered, geodesic or monolithic dome houses, and even an Earthship. We finally settled on a hybrid model: a barndominium with a bermed, earth sheltered home all in one.

Technically, there are some differences between an underground home and an earth sheltered (or earth bermed) home. An underground home is truly underground. It might have a courtyard or atrium to provide a more open feeling and give access to the above-ground world, but the house itself is below ground level.

A bermed home has earth piled up on the sides and roof, providing insulation from the elements. Frequently, grasses and other small plants are encouraged to grow over the piled earth to prevent erosion and help the home blend in with its natural surroundings.

The front of a bermed home can be disguised to fit in with zoning and neighborhood requirements or to give curb appeal or provide versatility. In our case, having a large shop with a one-bedroom home (the barndominium) that leads into a bermed wing (with more rooms!) is the perfect solution.

On the other hand, an Earthship is typically built from used materials that can be stacked, filled, and incorporated into the construction of the home. Think old tires and beautifully colored glass bottles.

Earthships are designed to make the most of passive solar energy for light and temperature control. They frequently include gray water systems and indoor planting beds for raising food. But you can include these amenities in an earth sheltered home, too.

Choosing a sustainable lifestyle

One thing almost all alternative housing models have in common is sustainability. People are trying to shift to a greener lifestyle: a life that allows us to get in touch with nature, provide healthy food for our families, and have access to water that hasn’t been chemically altered to make it safe to drink.

Renewable energy is another motivating factor. People are attempting to decrease their environmental impact. Solar panels and wind technology are just two of the options you have for getting off the grid and providing energy to your home.

When you start looking for land, keep these things in mind: What are the building codes in your county/city/town? Can you collect rainwater from your roof? Are gray water systems allowed? Can you dig a well on the property, and if so, what are you allowed to use the well water for (home, yard, domestic livestock)?

What is the soil like? Will you be able to garden without having to amend the soil, or will you need to haul in topsoil and compost for your fruit trees and veggies?

Check with your county assessor office to see what qualifies as a “home” for zoning purposes. This can give you a point of discussion with your lender—if the county says your solar panels qualify as electricity for a residential property, then they should qualify as electricity for the loan.

Still, some lenders may require proof that you can provide energy to the home during periods of low solar gain—like having a backup generator on the property.

Most alternative homes are built on parcels of land outside of cities or suburbia. Part of this is due to building codes. But it’s also because people who want a lifestyle where they can connect to the earth and provide a sustainable living for themselves tend to want to live away from the hustle and bustle of city life.

That’s not to say that all alternative homes are built on huge acreages, hours away from town. The Greater World Earthship Community in Taos, New Mexico, is a quick 20-minute drive from Taos.

And dome homes (which are also energy efficient) can be found in small towns and larger cities alike (like this monolithic dome in Denver).

Why is it challenging to finance an alternative home?

There are several reasons lenders are hesitant to provide home loans for alternative homes. The main reason is that there are so few of these homes compared to traditionally constructed models. They just can’t get the comparables they need to get an accurate value of the home.

To value a home, an appraiser needs to find similar homes that have sold in the area within the past 12 months. That isn’t easy to do for a unique home constructed from non-traditional materials.

Materials are part of the problem—but they can also be part of the solution. To qualify for conventional loans, homes must be constructed from approved materials (a straw bale home or cob house likely won’t qualify).

Those materials must meet HUD minimum property standards. If you can prove to your lender that your home was built with materials that meet the standards, you might just convince them to give you a conventional loan—or to at least give you a little better interest rate on a non-conventional option.

Lenders may also want to make sure that you have a reliable exit strategy. What if you need to sell your home? Will the lender give you an assumable mortgage?

If you, too, are fascinated by alternative homes but have hit the no-lender wall, I’ve listed a few lenders below who might be able to help you out. The lenders in this list have either funded alternative homes in the past, provide a non-conforming mortgage, or have information on their website that mentions financing for Earthships, earth sheltered homes, or tiny homes.

If none of these work for you, try contacting local credit unions, local banks, and hard money lenders. If you already own a home, you can try taking out a home equity loan or personal loan to get started with your new build. Make sure your lending institution doesn’t have restrictions on the use of a home equity loan.

Or you could sell your current home and—if county zoning regulations allow―live in an RV while your new, off-grid homestead is under construction.

Lender options

Dimond Mortgage: Taos, NM

Free and Clear: Ideas for alternate loans

Nova Home Loans: Arizona, California, Colorado, Nevada

Quontic: Non-traditional, Community Development Loans

Who builds alternative homes?

Many people prefer to build their Earthship or alternative home themselves, saving money on construction costs and being involved with every aspect of their home’s creation.

Others prefer to hire a construction company to do part or all of the work. After all, building a home is labor-intensive!

Some builders hold workshops that teach would-be homeowners how to build their own Earthship or dome house. This is a great option for eager learners who want to get involved in the construction process.

When you contact a builder, ask them if they use HUD approved materials. And ask them if they have worked with any lenders in your area!

Here are a few builders you can check out:

Financial incentives

Although the amounts have been decreasing in recent years, a few financial incentives are offered by the IRS for green home buyers and owners. Some of these pertain to remodeling a home, and some can be applied to a new build.

Financial incentives may be available for “solar electric property, solar water heaters, geothermal heat pumps, small wind turbines, fuel cell property, and qualified biomass fuel property expenditures.”

Tiny houses and bunkers can be off the grid, too!

Many people are opting for a minimalist lifestyle, and tiny homes cater to the modern minimalist. Funding for tiny homes is slightly different from funding for earth berm homes or other alternative home models.

Some lenders will finance tiny homes with the same type of loan as an RV; the tiny house will usually need to have wheels for this to apply.

If you live in an area that allows tiny homes, check out NerdWallet for tiny house funding options.

You can also contact Lightstream, a lender that funds storm shelter and tiny house loans.

What if you want your tiny house to be underground? Enter—the bunker! Bunkers come in sizes from “just enough space for a cot and a few necessities” to studio or one- or two-bedroom models.

Expect to pay more and get lender financing if you’re going for something on the larger end of the scale. If, however, you’re truly looking for a tiny house underground (small bunker), some manufacturers will offer financing on the models they sell.

Rising S Company has a steel “mini bunker” that is eligible for financing. It has room for a bunk bed, a composting toilet, a small stove and sink, and shelves for food storage.

Wrapping it up

Whether you want to buy a yurt or tiny house or build a rammed earth or dome home, financing can be your biggest challenge.

But the benefits of living a sustainable off-grid lifestyle are worth the effort it takes to educate your lender and build the life you desire. With a few phone calls and some elbow grease, you can make your off-grid dream a reality.

Know of any lenders you’d like to see added to this list? Contact me here!

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