Green Financing Part 2 - Products Available

Part 2 of this post about green loans addresses the types of financing available.  Part 1 outlines the process of gettign green financing which can be found in my earlier post. There are two categories of green loans today.  The first type offers incentives for homeowners to go green.  Usually the benefits are based on how much the homeowner can expect to save on utilities after the .   The second category makes cash available to do green improvements.  Some products are a combination of both options.

Energy Efficient Mortgage (EEM) – New/Remodeled Homes, and Energy Improvement Mortgage (EIM) – For “Fixer-Uppers”/Refinance to Remodel

How they work:  Incentive = Higher loan amount.

How to find them:  EEM/EIM’s are approved by Fannie Mae, Freddie Mac, FHA and HUD so they are available, but not widely used.   Contact your lender.

Pros:  May make buying a state-of-the-art efficient home more realistic, or provide the equity to make one that way.

Cons:  Not appropriate for someone who is most comfortable at the low end of their loan range.

 

Private Green Loans – For New/Remodeled Homes, “Fixer-Uppers”, Refinance to Remodel

How they work:  Incentive = Discounts which vary based on buyer’s credit scores and the extent of the green/energy efficient features.  Certified green homes purchased by buyers with top credit earn the best rates and lowest fees. 

How to find them:  To my knowledge, the players in this space are very limited. Agents who have earned a green designation such as EcoBroker Certified or NAR Green can help.  Or contact me for a list of the three big players in Chicago today.

Pros:  Save money each month on your mortgage payment on top of the discounted utility bills!

Cons:  Limited sources today.

203(k) Home Rehabilitation Loan - For “Fixer-Uppers”

How they work:  Incentive = Equity to complete green improvements.  No energy audit required.  This is a special FHA product for “fixer uppers” and energy efficiency improvements are approved.  The program requires two appraisals, one for the property as-is and another based on planned improvements.  The loan amount cannot exceed $410,000 in Chicagoland and improvements cannot cost more than $35,000.  Additional restrictions apply, so discuss these and the payout plan to your contractors with your lender.

How to find them:  The 203(k) program is approved by FHA and HUD so they are widely available.   Contact your lender.

Pros:  Provides the convenience of one loan to make funding home improvements a reality.

Cons:  The convenience usually comes at a higher interest rate.

To learn more:  HUD website - http://www.hud.gov/offices/hsg/sfh/203k/faqs203k.cfm

Seller Credit for Green Improvements - For “Fixer-Uppers”

How they work:  Current federal underwriting standards allow for a credit up to 3% of the purchase price from the seller to the buyer.  The buyer could request this credit and apply it to green improvements.  The credit still needs to be approved during the standard underwriting and appraisal process.  It is important to involve your lender early on if you are interested in structuring a loan to include a seller credit towards green improvements.

How to find them:  Work with your existing lender if the seller agrees to provide the credit.

Pros:  Use your existing lender and approved interest rate.  Potentially share the cost of energy efficiency improvements with the seller or finance the improvements over the life of your loan.

Cons:  Many approvals to meet.  Need to have good documentation to support the appraisal and show receipts paid.

To learn more:  Contact me.