Programs offer cash for energy upgrades
WASHINGTON — If you've been looking for a way to pay for energy improvements to your house, two little-publicized new mortgage programs could provide the cash you need.
The Federal Housing Administration and mortgage investor Fannie Mae have launched startups in the energy-conservation arena. Here's an overview, with some pros and cons.
FHA's new "PowerSaver" program lets eligible owners borrow up to $25,000 at rates of 5 to 7 percent for up to 20 years to finance retrofits including high-efficiency windows and doors, heating and ventilating systems, solar panels, geothermal systems, insulation and duct sealing. (Online: hud.gov; search "powersaver.")
Though a pilot program, HUD Secretary Shaun Donovan estimates that 30,000 PowerSaver loans will close in the next two years. It eventually could become a major national program for residential energy upgrades, with total loans in "the millions," he says.
An important element in the program is energy audits. Most participating lenders are expected to encourage owners to sign up for an energy-efficiency analysis to pinpoint where a house is inefficient and recommend upgrades to help cut bills and reduce greenhouse emissions.
FHA will insure loans to cover the improvements up to the $25,000 maximum under these guidelines:
• The house must be your principal residence, detached and single-family. No rentals, investor homes or second homes.
• You'll need to demonstrate that you are a solid credit risk. Minimum FICO credit scores of 660 are required, plus your total household monthly debt-to-income ratio cannot exceed 45 percent.
• Houses with negative equity will not qualify. There is no mandatory minimum equity stake, but the combined primary mortgage debt plus the PowerSaver second lien cannot exceed 100 percent of the appraised market value of the house. You could, for example, have a 10 percent equity position in a $200,000 home, and still qualify for up to $20,000 in a PowerSaver.
• Lenders are likely to take a hard look at all your income and asset documentation because PowerSaver will only cover 90 percent of the lender's loss or insurance claim in the event of a default.
Eighteen lenders will participate, ranging from giant Quicken Loans — a top 10 national mortgage originator — to regional and local players. A spokesman for Quicken Loans said the company hopes to offer PowerSaver in as many as 34 states during the pilot period.
Now, some pros and cons of PowerSaver: The biggest plus is its low fixed interest rate and long term — especially in comparison with most alternative options such as home equity loans and lines of credit, which typically cost more and may have less favorable payback terms. The main potential drawback: Because the program permits total household mortgage debt loads of up to 100 percent of market value, some borrowers could encounter payment problems with even slight income declines or if property values decrease, putting them into negative equity territory.
Fannie Mae's "energy improvement" mortgage add-on program is different from FHA's. Rather than a separate loan to finance energy retrofits, Fannie folds the cost of the improvements — capped at up to 10 percent of the estimated market value of the home after the energy-efficiency enhancements — into the mortgage amount. (Online: efanniemae.com; search "energy improvement.")
Fannie's program, available through participating lenders nationwide, lets you buy an existing house and improve its energy usage significantly with one mortgage at current market rates. Most single-family properties are eligible for the program, except for manufactured houses and cooperative units.
Be aware that Fannie requires an audit by a certified Home Energy Rating Systems expert up front to justify the proposed modifications to the house as truly cost-efficient. The HERS audit must be paid for by the borrower, but Fannie will credit an extra $250 to partly defray this expense.
Kenneth R. Harney can be reached at firstname.lastname@example.org.