In honor of the recent Good Earth Home Show I thought I'd share
this neat trick. Using this little known tool you can easily add value
for yourself or, in the case of real estate agents, your clients transaction.
The Energy Efficient Mortgage or EEM can
help you when buying or refinancing a home by allowing you to add the
costs directly to the loan for items that increase the energy
efficiency of the home. Storm windows and doors, a heat pump, digital
thermostats and the like. Even solar panels can work. Anything that
reduces the homes utility bill may qualify. This works for FHA or VA
loans. It's not a separate loan program; more like optional equipment you can
add to your loan. Let's start w/Federal VA, it's quicker and easier.
Here's how it works:
3 Tiers to choose from:
#1 - Up to $3000 may be
added to the home loan for energy efficient improvements with just a
bill/contract from the company doing the work. That's it. And
you can do the improvements after closing if you wish. You'll
pay a final inspection fee, typically $100, but your sale is done and you can
complete the repairs later. The lender will only hold the amount needed for the
repairs. Not the usual 1.5 times. The veteran does not even need to
qualify for the increase in loan amount since the utility saving is expected to
more than offset the increase in the mortgage payment. Every once in a
while common sense prevails...
#2 - $3000-$6000 may be
added as long as the project will return projected utility savings greater than
the increase in the monthly payment caused by the loan increase. Let's say
you want to add a $5000 heat pump and the inspector (yes, it requires a simple
energy improvement test to document the saving) says it should save $60/month
in energy saving. The increase in the borrowers payment will be, say
$25/month. You qualify.
#3 - Go over the $6000 limit
and VA requires that the improvements add the same or higher value to the home.
So, a $10,000 heat system needs to increase the value of the home dollar
for dollar. Using this one is more than a bit rare for obvious reasons
but can be done in cases where the value is not an issue.
You can see that #1 above is a slam dunk
and ideal when you just need some smaller improvements done to the home but
more costly improvements can be done as well. Here's the list of items VA
will consider:
Acceptable energy efficiency improvements include, but are not
limited to
· solar heating systems, including solar
systems for heating water for domestic use
· solar heating and cooling systems
· caulking and weather-stripping
· furnace efficiency modifications limited
to replacement burners, boilers, or furnaces designed to reduce the firing rate
or to achieve a reduction in the amount of fuel consumed as a result of
increased combustion efficiency, devices for modifying flue openings which will
increase the efficiency of the heating system, and electrical or mechanical
furnace ignition systems which replace standing gas pilot lights
· clock thermostats
· new or additional ceiling, attic, wall and
floor insulation
· water heater insulation
· storm windows and/or doors, including
thermal windows and/or doors
· heat pumps, and vapor barriers.
Want FHA?
For an FHA EEM you need a HERS (Home
Energy Rating System) energy audit. You can add up to 5% of the purchase
price/value of the home for improvement costs but you'll need this more
expensive energy audit. At last check the only auditor in our neck of the
woods is in Corvallis
and charges >$700 for the HERS report. Contact us for more specifics on this
program if you're interested or Click Here to visit HUD's guide.
I hope you find this tip useful.
Feel free to check in w/us before you move forward as lender guidelines
can and do change.
Best,
President, Chinook Mortgage Ltd - NMLS
#261588
541.302.3210
www.chinookmtg.com
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