When a lender figures the monthly mortgage amount that a buyer can afford whether it’s a purchase or a refinance, the amount is calculated to include principle, interest, taxes and insurance or PITI. But there’s another cost that is beginning to be taken into consideration—utilities. If you buy an older home with old single pane windows, old appliances, an old furnace, poor insulation, etc., the monthly cost to own the home can increase dramatically. If you don’t have the money to replace some of these items immediately you could spend hundreds of dollars more each month on energy costs. And if you decide to make some of the improvements or buy appliances on your credit card that just adds to your debt at pretty high interest rates.
But the FHA 203(b) loan, or Energy Efficient Mortgage (EEM) Program can help buyers and refinancers to make their homes more energy efficient and save a considerable amount on their monthly utility bills. “The EEM Program recognizes that the improved energy efficiency of a house can increase its affordability by reducing operating costs. Because the home is more energy efficient, the occupants will save money on utility costs” and significantly reduce the amount of money needed each month to operate the home. So here’s how it works. When you take out an FHA 203 (b) loan you can add up to $8,000 to the loan amount even if it goes over the FHA maximum loan amount or over what you qualify for. This additional amount is at the same rate as the original loan. So if you lock in at say, 4.25%. The additional amount is rolled right into the loan at the same rate. Here are some of the things you can do to improve your home’s value and energy efficiency: New windows, insulation, passive or active solar improvements, heating and air conditioning systems, appliances. Now needless to say $8,000 won’t cover all these things. So the borrowers needs to determine what things they want to do and how much it will cost.
Prior to settlement the borrower submits a home improvement energy package and the costs to the lender. Then a HERS (Home Energy Rating System) energy rater has to inspect the property to determine whether the cost savings over the life of the loan will be greater than the loan amount. The buyer, seller, lender or agent can pay for the cost for the inspection. Once the rating assessment has been done and a satisfactory rating has been determined, the lender can escrow the amount of money in the proposal. All work must be completed within 90 days. Most lenders don’t even know about this loan or if they do they don’t offer it. Don’t ask me why. So I was very happy when I found a wonderful loan officer at PMG Mortgage who made it his business to research the loan and convince his company to offer it to borrowers. Vince Coyle is ready and willing to work with borrowers on this loan product.
Given the low interest rates right now this loan is an excellent way to get a lot more bang for your energy efficiency buck. Plus, after you make some of these improvements most states have some tax credits and incentives that you might be eligible for. Here are the federal tax credits that are available now.
My purpose is to serve my clients and advocate for their highest and best good, so they attain their real estate goals.