Energy Efficient Mortgages and Rehab Loans Make Lending “Greener”
Filed under: FHA Loans
When you think of green businesses, the mortgage business probably isn’t the first to come to mind. It’s more likely that a huge pile of paper comes to mind. These days there is a disclosure, another piece of paper, for every imaginable scenario, which results in a mind numbing number of pieces of paper that are required for every transaction. While the mortgage industry has taken advantage of many technologies that have reduced the use of paper, until attorneys come up with a widely accepted method for electronic signings, we will be a paper heavy industry.
All the paper usage doesn’t, however, mean nobody in the mortgage business is “green” minded. Did you know there are some very cool mortgages being offered that can help to pay for making houses more energy efficient… greener?
The first is the Energy Efficient Mortgage (EEM) product offered by FHA. This is a mortgage product that acts very much like any other FHA loan. You save up for a down payment as little as 3.5%, fit into FHA’s guidelines, which are the loosest in the business right now, and then negotiate to purchase a house at a particular price. The EEM allows you to add to the loan balance a budget for added energy efficiency items to the house. This amount can be above and beyond the total value of the house. Examples of things that can be included in the budget are new energy efficient appliances (including washer, dryer and refrigerator), dual pane windows, insulation, weather stripping, etc. Once a new home owner completes the purchase transaction a contractor will immediately install all budgeted items even before moving in. The EEM is excellent when there are relatively minor changes to be made to the home.
When you are interested in purchasing a house that has a house that might need a significant amount of work, a Rehab Loan could be the right product. These loans allow a budget for all kinds of repairs to a house, not just energy efficient items. The big difference on rehab loans is they allow for a much larger budget for repairs. With a rehab loan you could do everything the EEM allows, but you could also finance adding solar panels to a house, or you could add a tankless hot water heater, for example, both items that are very energy efficient. Just like the EEM, the qualifying and underwriting process for the rehab loan is very similar to any other loan and most people that will qualify for a rehab loan will also qualify for a rehab loan.
The process of getting a mortgage might not be the greenest process on the planet, but that doesn’t mean the mortgage industry is completely ignoring the need to be green. By utilizing either of these mortgage products, a new home owner will be making green upgrades to their house that will save a ton of money on energy bills and help make a difference for our planet.
Franklin Loan Center | NMLS 237653
Licensed by the Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act, 4131316