Green renovation loan amounts – How they can be greater than appraisal values.
The fact that a purchase- renovation loan can be used to increase appraisal values is one of real estate’s best kept secrets.
Traditionally, the amount that can be loaned by a lender to a borrower to purchase a home is dictated by the appraisal value. This means that whatever the appraiser’s opinion of the “as-is” value of the property is, this is the maximum amount that a lender will lend to the purchaser.
This rule does not apply when using an FHA purchase-renovation loan to make a home green and energy efficient. This is firstly because the guidelines for this loan allow the lender to lend an amount equal to an appraiser’s opinion of the home’s “after improved” value.
Secondly, the lending guidelines will allow a green renovation loan amount 10% greater than the appraiser’s opinion of the homes after the green improvements have been made. As an example, assuming a $200,000 after green improvements value, the 10% additional amount could be as much as $20,000.
Thirdly, and in addition to the above 10% excess, FHAs Energy Efficient Mortgage (EEM) guidelines allow an additional loan amount 5% of the “as-is” value of the property. For example, an additional $12,500 could be allowed to upgrade a home valued at $250,000.
This is EEM additional amount is only allowed on condition that the funds are used to make the home more energy efficient. Also, the lifetime cost of the improvements must be less than energy saved during the same period (this determination must be made by an Energy Rater who has inspected the home).
Therefore, in addition to the green renovation- loan amount allowances, both of the two “greater than appraisal” amounts described above more than adequately cover the cost of an effective green energy upgrade package.
As an example, a green energy package might include the following:
- 15 SEER variable capacity AC ($7,000 – $9,000),
- Hybrid water heater ($1,500 – $2,000),
- Energy Star appliances ($8,000 – $10,000),
- Variable speed pool pump ($1,500 – $1,800),
- Home shell and duct sealing ($1,500 – $2,500),
- Attic insulation upgrade ($1,500- $2,500),
- Water saving fixtures ($600 – $800),
- Hot water recirculation pumps ($700 $-1,500).
The total for all of the above is $21,300 – $30,100 and which can be comfortably included in the “greater than appraisal” values described above.
If any of the above upgrade package items were not needed because they were already upgraded recently, then the buyer could include thermal window upgrades ($6,000-$18,0000).
Fourthly and finally, and in addition to the above additions, Energy Efficient Mortgage (EEM) guidelines allow an additional loan amount equal to 20% of the “as-is” value of the property for solar improvements. For example, an additional $50,000 could be allowed to upgrade a home valued at $250,000.
The only downside to a borrower being able to take advantage the higher than appraisal value opportunities explained above, is to find lenders that are prepared to include them in their loan guideline overlays. What this means is that lenders have the option to offer FHA-insured loan features or not, and they usually prefer not to offer those that they perceive to involve additional underwriting. The above described inclusion of an Energy Rater is also something that some lenders perceive to be an additional cost that borrowers might not want to bare.
At Florida Green Home Brokers, we have taken the time to research and locate mortgage brokers and lenders who are prepared to do the additional underwriting that is required. In addition, we also have a database of Energy Raters that provide services at a very reasonable cost. Finally, we have a specialty service that co-ordinates all the paperwork, including contractor bids, and Energy Rater reports to help underwriters to streamline the EEM underwriting.
As a result, we are able to help buyers to achieve greater than appraisal values and qualify for green purchase- renovation loan funding, so that they can live in more comfortable energy efficient green homes that ultimately cost less to own.
Other posts about financing that will also be useful to you are:
Our services are always FREE to Buyers, and we contribute $500 towards closing costs if you buy through us, as well as $250 toward our Switch to Green, Switch it Forward Fund, to help fight poverty and climate change.
Let us show you how we can be Your Green Dream Team to help you to Live in a High Performance Green Home, that will Save You Money and help you to Pay Your Mortgage Off Years Earlier, while at the same time, live in a home that is Healthier, More Comfortable, Safer and Kinder To The Earth.
Thank you for visiting. Please leave a comment below about our green renovation loan and then check out the rest of our BLOG. We look forward to making Green Home living your reality.
Marius J Smook – Licensed Real Estate Eco-Broker, LEED AP for HOMES, Home Energy Rater.