TexEnergy Solutions

Lender Information

You can participate in the emerging market force towards energy efficient homes. From Alaska to Florida mortgage lenders are increasingly using energy mortgages to make homes more affordable and poising their companies to capture this new market trend.

What is an energy mortgage? An energy mortgage is a mortgage that credits a home’s energy efficiency in the home loan. There are two types of energy mortgages:

Energy Improvement Mortgage - Finances the energy upgrades of an existing home in the mortgage loan using monthly energy savings

Energy Efficient Mortgage - Uses the energy savings from a new energy efficient home to increase the home buying power of consumers and capitalizes the energy savings in the appraisal

Government-Insured

Conventional

Who Qualifies?

All buyers or owners who can qualify for any FHA or VA home loans are automatically eligible for the FHA or VA Energy Efficient Mortgage Option. In almost all cases there is no additional down payment and the installed energy improvements will eventually produce a Positive-Cash-Flow. A HERS report is needed to qualify for energy efficient financing.

Home Energy Rating Systems (HERS)

Home Energy Rating Systems (HERS) were created to help evaluate energy efficiency levels of new and existing homes and identify ways to improve them. In addition, this system offers a standardized measurement for the financial community (such as mortgage companies) to use. HERS-rated homes often qualify for special mortgage rates. In addition, homeowners can now obtain loans to make HERS-related energy efficiency improvements.

A HERS evaluation is like an energy audit, only more in-depth. Most HERS raters come from either the housing or energy fields and all must pass special training courses and receive certification.

Each on-site HERS evaluation examines several key home components and evaluates their energy efficiency levels:

Thermal envelope (structure, insulation and air flow)
Window quality and quantity
Heating, ventilating, and air conditioning systems
Appliances
Geographical location and home orientation
Fuel types and utility rates

By studying these elements, a HERS professional can calculate a home’s energy cost, evaluate its overall efficiency, and recommend future changes. Data from the on-site visit is input into a computer program, evaluated, and put into report format. Typical HERS reports will:

Rate the house (as it is) and estimate its total energy use and costs.
Recommend specific cost-effective energy upgrades.
Provide detailed information about the costs, "payback periods" and expected lifetimes of the recommendations.
Re-rate the home based upon the recommendations and recalculate total energy use and costs.

Energy-Efficient Financing Programs

You can apply for energy-efficient financing through a government-insured or conventional loan program. Some states even have programs for their residents, so it's a good idea to contact your state energy office to find out if your state does.

There are two types of energy-efficient mortgages (EEMs): one for a new home and one for an existing home. With an EEM, you can purchase or refinance a home that is already energy-efficient. Or you can purchase or refinance a home that will become energy-efficient after energy saving improvements are made. Most energy-efficient financing programs offer both types of EEMs, as well as home improvement loans for making energy efficiency upgrades to your existing home.

Here's an overview of some of the energy-efficient financing programs available. Each program is subject to change; therefore, you should contact a program directly for the most current, detailed information.

Government-Insured

U.S. Department of Housing and Urban Development

Under the U.S. Department of Housing and Urban Development (HUD), the Federal Housing Authority (FHA) insures mortgage and home improvement loans, through its approved lenders, for borrowers who would not otherwise qualify for conventional loans on affordable terms, such as some first-time home buyers and some residents of disadvantaged neighborhoods.

FHA Energy-Efficient Mortgage

FHA allows borrowers to finance the cost of adding energy-efficient improvements to new or existing homes as part of their FHA-insured purchase or refinancing mortgage.

Energy-efficient improvement costs of $4,000 or 5 percent of the property value (up to $8,000), whichever is greater, can be financed.
The FHA maximum mortgage limit for an area may be exceeded by the cost of the improvements.
No additional down payment is required.
No requalifying is necessary.
No new appraisal is needed.
Up to $200 of the cost of a home energy rating may be included in the mortgage.

This EEM can be used in conjunction with several other FHA-insured mortgages, including the 203(k) rehabilitation mortgage insurance described below.

FHA Section 203(k) Rehabilitation Mortgage Insurance

FHA Section 203(k) rehabilitation mortgage insurance provides a borrower with a single loan that covers both the purchase or refinancing and the cost of major home improvements, including those that save energy. The program allows borrowers to complete improvements after the loan closes. The funds are placed in an escrow account and released as improvements are made.

Total cost of improvements must exceed $5,000.
The total property value must still fall within the FHA mortgage limit for the area. (The property value is determined by whichever is less: the value before the rehabilitation plus the cost of the rehabilitation or 110 percent of the appraised value after rehabilitation.)

FHA Energy-Efficient Home Mortgage

When purchasing an energy-efficient home, an FHA-approved lender can stretch the borrower's debt-to-income ratio by 2 percent.

FHA Mortgage Increase for Solar Thermal Systems

The maximum loan limit under FHA's standard 203(b) or 203(k) property rehabilitation mortgage insurance can be exceeded by 20 percent if the home has or will have a passive or active solar heating system. The home must also have a 100 percent operational, conventional backup system.

FHA Title I Property Improvement Loan Insurance

FHA also insures home improvement loans, including those that will make a home more energy-efficient, for homeowners with FHA-insured mortgages. It features:· Loans up to $25,000 for a single-family home · Loans insured up to 20 years No required home energy rating reports.

U.S. Department of Veterans Affairs

The U.S. Department of Veterans Affairs (VA) guarantees mortgage loans for veterans with active duty service and qualified reservists. Its EEM can be used to purchase or refinance a home along with the cost of making energy-efficient improvements. To cover the cost of the improvements, the loan amount can be increased:

Up to $3,000 based solely on documented costs
Up to $6,000 if the increase in the mortgage payment is offset by the expected reduction in utility costs.
More than $6,000 based on a value determination by VA.

A VA refinancing loan may not exceed 90 percent of the home's appraised value plus the costs of the improvements.

Conventional

Most of the national lenders who offer energy-efficient financing operate through one of the following programs.

ENERGY STAR® Mortgage

The ENERGY STAR® Homes program—sponsored jointly by the U.S. Department of Energy and the U.S. Environmental Protection Agency—promotes voluntary partnerships with home builders to construct new homes that are 30 percent more efficient than the guidelines established by the Model Energy Code—a "model" national standard for residential energy efficiency. The program also encourages lenders to provide EEMs for certified ENERGY STAR® homes. An ENERGYSTAR® mortgage offers a minimum 2 percent stretch on a borrower's debt-to-income ratio, plus at least one additional incentive for borrowers. Incentives may include:

A lower interest rate
A discount on closing costs and/or origination fees
Up to a 4 percent extension of the debt-to-income ratio stretch
Paying for the cost of the home energy rating.

Fannie Mae

Fannie Mae—a private, shareholder-owned corporation—operates under a congressional charter that directs it to channel efforts into increasing the availability and affordability of homeownership. It doesn't lend money directly to homebuyers; it purchases mortgages from lenders, ensuring that funds are available.

Energy-Efficient Mortgage

Fannie Mae encourages lenders to offer its EEM by providing incentives and specific criteria for those that it's willing to purchase from lenders. Both existing and new homes fall under this EEM.

Several approved home energy rating methods and programs, not just a HERS, are allowed to evaluate a home's energy efficiency.
For existing homes, the cost of improvements is limited to 15 percent of its total cost. There is no limit imposed on the cost of improvements for new construction.

A homebuyer can finance 100 percent of the energy efficiency improvements without increasing the down payment.

Residential Energy Efficiency Improvement Loan

Fannie Mae is partnering with utility companies to provide loans to utility customers for the installation of energy-efficient home improvements. The loans feature:·

A below-market interest rate
An unsecured financing option
Up to $15,000
A term of up to 10 years

A "whole-house" or bundled approach to efficiency improvements.

Freddie Mac

Freddie Mac is a stockholder-owned, congressionally chartered corporation that works to create a continuous flow of funds to mortgage lenders in support of homeownership and rental housing. It purchases mortgages from lenders and packages them into securities that are sold to investors, providing homeowners and renters with lower housing costs and better access to home financing.

Energy-Efficient Mortgage

Like Fannie Mae, Freddie Mac provides incentives and criteria, as well as flexible guidelines, for EEMs that it's willing to buy, which encourage lenders to offer them. However, the EEMs are limited to purchasing existing energy-efficient homes or those to be retrofitted or renovated for energy efficiency.

Several home energy rating methods and/or documentation, not just a HERS report, are acceptable.
Lenders can exceed the standard 2 percent debt-to-income stretch at their own discretion.

It allows a broader range of energy-efficient improvements than most EEM programs.

E Seal

E Seal, an Edison Electric Institute program, provides energy-efficient solutions for homebuyers, residential energy customers, small business customers, and homebuilders.

Energy Efficiency Mortgage

This EEM is available through utilities with E Seal certified programs. It can be used to finance the purchase of a new home with energy efficiency upgrades or to refinance an existing home while adding these improvements. It features:

100 percent financing of energy efficiency upgrades
No additional down payment, mortgage insurance obligation, or requalification
Maximum qualifying ratios that are 5 percent better than standard ratios and 3 percent better than regular EEMs

Lower than prevailing market interest rates and closing costs.

Residential Financing Program

For energy-efficient home improvement loans, E Seal's program participates with Fannie Mae's Residential Energy Efficiency Improvement Loan program (see above).When it comes to energy-efficient financing—whether you want to purchase, refinance, or remodel a home—it's best to work with lenders and/or real estate agents who are familiar with home energy ratings and program requirements. If you'd like a home energy rating report, it's also best to work with a certified energy rater. In all instances, it's always a good idea to ask for references and check companies with your local better business bureau.

EEM Contact List

The following are the key national contacts for lenders planning to establish an Energy Efficiency Financing program:

Fannie Mae

3900 Wisconsin Avenue, NW

Washington, D.C. 20016-2899

http://www.fanmiemae.com