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   ARTICLE   |   From Scotsman Guide Residential Edition   |   July 2018

Build Better Neighborhoods One Green Loan at a Time

Energy-efficient financing can do good for you and the community

r_2018-07_hormozian_spot.jpgHistorically, technology has drastically changed the backdrop in which business is done. During the industrial revolution, for instance, new technologies brought about efficiency in manufacturing and mechanical processes.

More recently, technology is changing the way houses are built — making them, in many cases, more energy efficient. That has led to changes in how loans are originated for these homes.

In recent years, lenders have created energy-efficient mortgage programs. These can be sought through government-insured or conventional loan programs. Mortgage originators aiming to expand their business should not only be aware of energy-efficiency programs, but also highly familiar with them, and understand the rules, products and programs available in each state where they work.

Financing available

Generally, there are two types of energy-efficient financing — one for the purchase of an existing energy-efficient home (referred to as an energy-efficient mortgage), and the second is a home-improvement loan (often referred to as an energy-efficient loan.)

The first type of loan has many of the same characteristics and considerations as a standard loan. The loan application, underwriting and review process is the same, although the programs may vary. In this type of loan, like a standard loan, the subject property is considered the collateral for the loan.

There is a subcategory of mortgages offered by the Federal Housing Administration (FHA) called FHA Energy Efficient Mortgages. Originators should explore the details of these mortgages on the FHA website.

These loans were established to help families reduce the cost of their utility expenses, ultimately making homes more affordable. There are maximum amounts that can be added to an FHA loan under these types of programs. An FHA-approved lender can access an energy-efficient mortgage calculator to determine the dollar maximum that can be financed for energy improvements.

The second type of loan, the energy-efficient loan, is offered to pay for home improvements on an existing property and upgrade it to an efficient status, thereby increasing the value and quality of the home. Energy-efficient loans for home improvements are considered unsecured and do not use the subject property as collateral for the loan. Rather, they are tied to the borrower in the same way a line of credit would be.

This is a great marketing tool. Mortgage originators should launch marketing campaigns to appeal to homeowners in an existing area that could be eligible for these types of improvement loans. This type of campaign will show the mortgage originator’s expertise and knowledge, but also expand his or her outreach into the community.

Increasing the home value

There are a few general requirements that must be met before a property and a borrower would be considered eligible to receive the benefits of an energy-efficient mortgage. Initially, the property must be reviewed and analyzed (often called an audit) by a qualified home energy assessor to make a determination regarding the current energy-efficiency status of the property.

The factors that are considered in this determination include things like: Are the windows double paned? Do the windows hold in and keep out the appropriate heat or cold? Is the heating and cooling system modern or outdated? What’s the annual energy use and costs associated with the home? Often, these final determinations include suggestions or recommendations that can be acted on to remedy any nonefficient findings.

A step to be taken to assist a borrower in demonstrating eligibility for an energy-efficient loan is to prepare a report that shows the current status of the home and the potential future status after improvements. If a house has outdated single-pane windows, for example, the report could present an analysis of the reduced energy costs as a result of replacing the windows, which should clearly show that the windows will end up paying for themselves through cost savings.

A borrower may question the use of financing to perform energy upgrades to their home. The best response to such a concern is to redirect the borrower’s attention to the fact that loans for this purpose are no different than loans used to improve the property in other ways, such as adding an additional story, extra bathrooms or building an outdoor kitchen. Basically, the use of financing can be appropriate for any improvement that increases the value of the home.

The factors to be considered in determining which type of energy-efficiency loan should be presented to a potential borrower are similar to the factors consid-ered when a mortgage originator is choosing a program or product to offer to a client. Essentially, the credit-worthiness of the borrower and his or her ability to repay the loan are the prime considerations. Also, it is important that a mortgage originator be aware of other financing options that are available to borrowers in terms of energy efficiency.

•  •  •

Energy-efficient financing can be a great avenue to explore for a mortgage originator attempting to employ a new marketing strategy in an older neighborhood in need of revitalization. Not only will such financing improve the homes and lives of people but also will serve to make better neighborhoods and communities overall. 


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