Energy Efficiency Makes Sense – and Cents
August 10, 2017
“Sure, if I could afford it.” It’s a common response when consumers are asked if they’d like a more energy-efficient home. They may believe that such improvements are out of their reach, due to up-front costs. But beyond those initial costs, they can save in utility bills, product rebates, and possible tax benefits in the long run. You can assist in financing through a safe and affordable mortgage solution.
How It Works
“Under our current guidelines, lenders may offer options for financing investments in energy-saving appliances, renewable-energy power sources, and other environmentally beneficial upgrades as part of a home purchase or cash-out refinance,” explains Danny Gardner, Freddie Mac Vice President of Single-Family Affordable Lending and Access to Credit.
“Importantly, these financing flexibilities are available with any of our fixed- or adjustable-rate mortgage offerings – even our low down payment Home Possible® products for borrowers wanting to purchase a home” he says.
When computing loan-to-value (LTV) ratios for these loans, you can use the lesser of (1) the “as completed” appraised property value or (2) the purchase price – which includes both the price paid for the premises and the actual costs for energy conservation improvements.
Gardner adds, “There’s no limit on the cost of the efficiency-related items, as long as total financing doesn’t exceed our mandated loan limit and meets our LTV requirements.”
One very important condition of a Freddie Mac energy-efficiency financing option is that the mortgage must have and retain its first lien position for the life of the loan.
- If a property is subject to another lien that has priority position, then the mortgage is not eligible for sale to Freddie Mac.
- If Freddie Mac’s lien position is subordinated to an energy retrofit loan after the mortgage was sold to us, the energy retrofit loan needs to be paid off so that the borrower will not be in violation of their mortgage contract. The borrower may be able to do so by refinancing the mortgage.
“Our aims are to bring more of this type of financing into the market,” Gardner concludes, “and to help promote and preserve housing affordability, while benefiting our environment.”
Financing conservation home improvements as part of a Freddie Mac loan creates a broad range of benefits to both the homeowner and you, their lender.
Homeowners gain the long-term benefit of reduced energy and water bills, while also amortizing the up-front costs of high-efficiency products or systems. Other savings accrue from product rebates and federal tax credits. On top of these savings, the homeowner creates a more comfortable home. Here are Freddie Mac articles and blog posts you can share with your borrowers:
- Energy Efficient Financing
- Get Smart(er) on Green
- The Energy Revolution and You
- Financing Your Green: Three Critical Questions to Ask
- Green? Or Just a Shade of Green?
- Knowledge is Power. Really.
Likewise, you, the lender, can benefit by expanding your mortgage product portfolio. Make sure others in your business network are aware that flexible mortgage terms for energy efficient properties are available. Additionally, you can learn about Freddie Mac’s Refinancing and Energy Retrofit Programs here.