What is the HomeStyle Energy Mortgage Loan?
As the old saying goes, "You have to spend money to save money." There's little question that energy efficiency upgrades and solar energy can save you money. The problem is that they sometimes take a nice chunk of up front capital before you can reap the benefits. For those with plenty of liquid cash, adding solar panels, geothermal, or upgrading insulation is a no-brainer. Most homeowners, however, need to see low out-of-pocket expenses to make it feasible. Until now it was tricky for some homeowners to finance these upgrades.
This barrier to entry is why Fannie Mae created the HomeStyle Energy Mortgage Loan. Here's what you need to know:
- The loan is available to lenders as an affordable option for borrowers who want to do energy and water efficiency improvements to a new or existing home.
- This especially helps borrowers who want to buy a home that needs efficiency improvements.
- The lender can now add to the original loan up to 15% of the completed value of the home after improvements; that's $30,000 on a $200,000 home that can be spent on solar, water heaters, heating and air conditioning, new windows or doors, new toilets or other energy or water efficiency improvements.
- It also helps those who which to refinance and complete improvements at the same time.
The average age of an existing home is 37 years old. More than half the homes in the U.S. were built before 1975. The HomeStyle Energy Mortgage Loan makes it easier to improve these homes at purchase or for refinancing.
How do you qualify for the HomeStyle Energy Mortgage Loan?
In order to qualify for the loan, you'll be required to get a Home Energy Rating Systems (HERS) report, a Department of Energy (DOE) Home Energy Score Report, or a comparable rating report completed by an independent and certified home energy consultant or assessor if permitted under a local or state-level home energy certification or evaluation program. Your home improvement contractor can help you complete one of these reports.
For basic weatherization improvement under $3,500, no HERS Report or Home Energy Score is required. According to Fannie Mae, basic weatherization items may include, but are not limited to:
- air sealing (including weather-stripping doors, caulking windows and plumbing penetrations)
- insulation (attic, floors, walls, basement)
- duct sealing and insulation
- smart thermostats and equipment controls
- windows and doors
The appraiser will be responsible for determining the "as-completed" property value after the energy improvements are completed. They will also need to verify that the improvements are completed. This ensures that the property actually is improved by the value of the loan. This helps both the homeowners and the banks. As I've mentioned in past articles, many home improvements have a return on value lower than the cost of the improvements. For example, the cost of a kitchen or bath remodel can be significantly higher than the added resale value. Whereas the addition of solar can actually cost less than the added resale value. Being able to factor this into a loan is significant. Check out the 2016 Cost vs. Value Report to see how much different projects impact your homes value.
The good news is that when it comes time to finance these beneficial improvements, the HomeStyle Mortgage is making it easier to do. Any Fannie Mae approved lender can help you with these loans with no special approval required.