As published in Scotsman Guide's Residential Edition, August 2012.
Green building and energy-efficient home upgrades do more than merely help the environment. For homebuyers, energy-wise improvements can help reduce future utility costs and deliver a comfortable home with improved air quality and living standards. In many cases, energy-efficient upgrades also can bring a home up to current building codes, increasing its value and, by extension, bolstering the value of the entire neighborhood by converting an old, functionally obsolescent home into an energy-wise, renovated home.
As appealing as a renovation may be, however, upgrading a home can be a difficult undertaking. With that in mind, how can mortgage brokers and originators help their green-minded clients plant the seeds for success? When it comes to upgrading a property with energy-efficient improvements, homebuyers need to know that it takes a team of informed professionals to help a project flourish. >>Navigating the world of underwriting can be tricky business, however. Even if a loan fits given parameters and guidelines at the time of closing, originators still can be held liable for mortgage-insurance rescissions and repurchase demands long after a loan’s closing. When it comes to steering clear of underwriting trouble, brokers and originators must have a solid grasp on general underwriting processes and the many layers of due diligence that occur after a loan closes.
Mortgage brokers and originators should know what to expect out of the entire process when helping clients finance green renovations. By working together, the right team of professionals can help their clients create energy-efficient, environmentally friendly homes that will decrease energy use while increasing value.
The Green Team
Closing any deal within the mortgage industry requires a degree of teamwork, but this is especially true when it comes to green purchases and refinances. Homebuyers — and the originators who are working with them — should be sure to align themselves with an experienced, well-functioning team to ensure that their green deal doesn’t wilt away.
The green-buying process likely will begin with a qualified Realtor who can identify viable properties that meet the borrower’s specifications. This person can estimate current market value and negotiate an acceptable purchase price and terms. In today’s market, these professionals must be skilled negotiators in addition to being well-versed professionals when it comes to green homes specifically.
A general contractor who is a certified and experienced energy professional can act as a project manager for a deal, providing a viable project estimate and identifying available rebates and incentives. Once again, experience is key. With regards to green building and renovations, many general contractors must work through a myriad of problems and bumps in the road, so it’s vital for this person to stay informed about the latest techniques and tools of the green industry.
Finally, there’s you: the loan professional who is tasked with providing realistic cash requirements and a fully documented pre-approval. There are multiple energy-wise financing options in today’s industry, so it’s crucial to have a clear understanding of your borrower’s desired outcome and qualifying capacity. This can be a great help in determining the best approach to your client’s financing options.
Invariably, many of your borrowers will be interested in either the Federal Housing Administration’s (FHA’s) 203(k) loan program or an energy-efficient mortgage. In working with these borrowers, mortgage brokers and originators should consider several key factors before the deal gets fully underway:
Is the borrower clear about the specific type of home that’s desired?
Does the borrower have a realistic expectation for the purchase or renovation, given the state of the housing market?
Does the borrower have enough cash for the transaction? When working with the 203(k) program, the loan amount will be determined by the lesser of two calculations: Either the sale price (or appraised value) plus rehabilitation and other allowable costs; or the property’s ultimate, improved value plus 10 percent.
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