If you have a furnace that uses wood or pellets to create heat, you may need to install it outdoors for proper venting and safety. Ideally, you will want to place the furnace as close to the house as possible to make duct access easier, but there are other considerations. Place the furnace out of direct winds or out of a wind stream that will blow the smoke into your house or neighboring houses. The closer to a door, the more easily you can add more wood to the furnace.
Basements are ideal locations for electric or gas furnaces. They are inside the house, allowing for easier repairs and maintenance, but are also out of the way and have access to drainage systems that can channel excess condensed water away from the furnace. The best method for installing the unit in a basement requires supports that lift the furnace at least 4 inches off the ground to avoid heat and moisture problems.
If you only have a crawlspace underneath your house but have an attic, you can install the furnace up above the house. Always install the furnace in a place where the noise will not bother you; avoid placing it directly above bedrooms or entertainment rooms. Leaks are a more serious problem in attics, so install a double drainage pan system to avoid any problems.
If you have neither an attic nor a basement but you do have a garage, you can install the furnace there. Similar rules to basements apply; you need a drainage channel to take care of excess water and supports that lift the furnace up from the ground by several inches. Garage locations work very well for easy maintenance and care.