SECTION 7002 ENERGY EFFICIENCY INTEREST RATE REDUCTION (EEIRR)

Transcription

1 SECTION 7002 ENERGY EFFICIENCY INTEREST RATE REDUCTION (EEIRR).01 INTRODUCTION As an incentive for borrowers to increase the energy efficiency of available and proposed housing as well as maintain the energy efficiency of newer existing homes, AHFC will provide an interest rate reduction for energy efficiency. For newly constructed homes and certain existing energy efficient homes, the energy rating must exceed the minimum standard of 5. For existing inefficient homes, the energy rating must be increased by one or more steps and the improvements increase the rating by a minimum of 5 points. The applicable interest rate reduction is determined by the property s access to lower cost natural gas. Note: Contact AHFC for properties served by liquefied natural gas. The interest rate reductions are limited to the first $200,000 of the loan amount. The interest rate will be blended for loan amounts exceeding $200,000. With the exception of the Streamline Refinance Program, the reduced rate may be applicable to all existing programs for purchase and refinance transactions to include seconds for purchase and HILs. Refinance transactions are eligible for an interest rate reduction only when the energy efficiency of the dwelling is increased. In addition to the reduced interest rate, lenders may qualify borrowers using increased payment and total obligation ratios by two percent (2%) for homes with an energy rating of 4 + or 5 and three percent (3%) for homes with an energy rating of 5 + or better. A copy of the energy rating certificate must be included in the submission. A home s energy efficiency rating is based on the following point system: Points Rating Points Rating RATING SYSTEMS AHFC accepts only those energy rating software programs, independently tested at AHFC s direction, that comply with the Building Energy Efficiency Standard (BEES). For additional information about energy ratings, software programs, etc.,

2 contact AHFC s Energy Department/Rural Research and Development, or see ENERGY RATING AHFC accepts energy ratings produced only on AkWarm software. Hereafter energy rating refers to an AkWarm home energy rating. A. New Construction For new construction, the energy rating must generally be no more than one-year old at time of application for an AHFC commitment. B. Existing Energy Efficient Homes For existing energy efficient homes, the energy rating can be no more than three (3) years old at time of application for an AHFC commitment. If changes have been made to the home that may affect the energy rating, a current (no more than one year old) energy rating is required to verify eligibility for an interest rate reduction. Note: If the homeowner is unable to provide a copy of the original energy rating, a new energy rating is required to verify energy efficiency. A copy of the recorded PUR-101 indicating the energy rating is acceptable, in lieu of the original rating, provided it is no more than three years old. (Prior to February 1, 2002, a PUR-103 was used to certify compliance on an existing home.) C. Existing Homes Subject to Energy Improvements.04 INTEREST RATE For existing homes subject to energy improvements, the initial energy rating can be no more than three years old at the time of application to AHFC for commitment. The final energy rating must be completed within 365 days of loan closing. In order to ensure that the appropriate interest rate reduction is applied to individual loans, the Lender must obtain a copy of the energy rating certificate, which details not only the star value of the home, but also the point value. Attention must be given to the appropriate software version used on the energy rating. The certificate lists the version in the lower left hand corner. The interest rate reduction is limited to the first $200,000 of the loan amount. The energy rate reduction is subtracted from the loan program interest rate under which the borrower applies, i.e., Tax-Exempt, Taxable First-Time Home Buyer,

3 Rural, VMP, Taxable, etc. AHFC will blend the interest rate for loans that exceed $200,000 using a weighted average method. If the loan is for an existing property subject to energy improvements as described in.07, AHFC will calculate the interest rate reduction on the current principal balance at the time of modification..05 NEW CONSTRUCTION New construction is typically defined as a dwelling that has not been occupied by persons other than the borrowers since construction and, if never occupied, is less than 12 months old. For purchase transactions, occupancy by the borrower is limited to 90 days prior to loan commitment. For owner/builder transactions, occupancy by the borrower is limited to one year prior to loan commitment. In any case, new construction should generally have been started within two years and completed within six months of commitment. For newly constructed properties served by or with* access to natural gas, the applicable rate reduction is: Based on an energy rating at or less than one year old at time of application for AHFC commitment. 5 + ( points).250% 6 ( points).375% *A property with access to natural gas is defined as one which has natural gas already to the site or one for which natural gas is available at a cost that does not exceed five percent (5%) of the appraised value of the property. For newly constructed properties without access to natural gas, the applicable interest rate reduction is: Based on an energy rating at or less than one year old at time of application for AHFC commitment. 5 + ( points).375% 6 ( points).500%.06 EXISTING ENERGY EFFICIENT PROPERTIES An existing energy efficient property is defined as one, which has been completed for more than one year, or one, which has been previously occupied.

4 A. Homes with Access to Natural Gas For existing energy efficient homes with access to natural gas, the applicable interest rate reduction is: (Based on an energy rating at or less than three years old at time of application for AHFC commitment.) 5 + ( points).125% 6 ( points).250% B. Homes without Access to Natural Gas For existing energy efficient homes without access to natural gas, the applicable interest rate reduction is: Based on an energy rating at or less than three years old at time of application for AHFC commitment. 5 + ( points).250% 6 ( points).375%.07 EXISTING PROPERTIES SUBJECT TO ENERGY IMPROVEMENTS Existing homes in which the energy efficiency rating is improved by at least one step, such as 3 + to 4 or 2 to 2 + may be eligible for an interest rate reduction up to a maximum of three-quarters of one percent (.750%). In addition to the improvements resulting in a step increase, the improvements must increase the initial energy rating by a minimum of 5 points. For example, in a home with an existing energy rating of 44 points, the efficiency must increase by 6 points to move to the next step. This improvement would result in an interest rate reduction of one-eighth of one (.125%) because both the step increase test and initial point increase test is met. However, if the existing home had an initial energy rating of 47 points, the improvements would have to increase the rating to 52 points before a one-eighth of one percent (.125%) rate reduction would be available (even though the next step would have required only a point value of 50). The same software program (and version) must be used for the initial energy rating and for the final rating after the energy efficient improvements are made. To use one software program for the initial rating and another for the final rating could result in assignment of an inappropriate star value with either too much or too little in point value. (For additional information about energy ratings, software programs, etc., contact AHFC s Energy Department/Rural Research and Development.) Note: The initial rating may not be more than three years old at the time of application to AHFC for commitment.

5 The applicable interest rate reductions for improvements resulting in a step increase and the initial minimum point increase are as follows: Areas Served by or with* Access to Natural Gas Increases in Energy Rating Properties without Access to Natural Gas Increases in Energy Rating 1 Step.125% 1 Step.250% 2 Steps.250% 2 Steps.375% 3 Steps.500% 3 Steps.625% 4 or more Steps.625% 4 or more Steps.750% * A property with access to natural gas is defined as one which has natural gas already to the site or one for which natural gas is available at a cost that does not exceed five percent (5%) of the appraised value of the property. A. Improvements Completed Prior to Submission The improvements may be no more than one-year old at the time of submission and are acceptable only if an energy rating is performed before and after the improvements. The submission file should contain both the initial and final energy rating. B. Improvements Completed Prior to Closing In cases where the improvements are not completed at the time of submission, but will be completed prior to closing, the submission file must include the initial energy rating. The final rating must be done prior to closing and retained in the lender s file. Should the improvements result in a final rating less than that proposed in the initial report, the lender must submit the final rating to AHFC prior to closing for review and, if necessary, adjustment to the interest rate. C. Proposed Improvements If the borrower intends to make energy improvements after loan closing, the submission file must clearly indicate the borrower's plans. A Notice of Potential Eligibility for an Energy Interest Rate Reduction Modification (Form UND-10) must be completed by the lender, signed by the borrowers and included in the loan submission package. If improvements are not completed prior to loan closing, the loan must be closed at the applicable program rate with no reduction for energy efficiency. The interest rate may subsequently be modified to reflect the applicable interest rate reduction based on energy efficient improvements, provided the final energy rating is obtained within 365 days of loan closing, the rating is increased sufficiently to warrant a reduction in rate, and the application for modification is submitted to AHFC within 30 days of the

6 final rating. Borrowers must be made aware of the time restrictions placed on them for completing the improvements, obtaining the final rating, and submitting the request, through the lender, to AHFC for modification of the interest rate. In some cases the "before" energy rating may not be available prior to the borrowers actually taking title to the property and is, therefore, not required in the submission file. However, buyers must be made aware that an initial energy rating must be done prior to beginning any improvements and that all improvements and the final energy rating must be completed within 365 days of loan closing. 1. If the property value (as determined by the lower of the appraisal or sales price) is conditioned on completion of the energy improvements, or if the loan amount has been increased to include energy improvement costs (as allowed by FHA and VA) the lender must escrow sufficient funds to cover 100% of the proposed cost. If the borrower is funding the improvements, funds must be from the borrower's own assets or gift funds from a relative, provided insurer/guarantor requirements are met. The term of the escrow may not exceed 365 days. If the work has been started but is incomplete after the escrow period, the Servicer is to contact AHFC to determine how to proceed. If the work has not been started during the 365 days, the escrow is applied as a principal curtailment. 2. If the property value is not conditioned on completion of the energy improvements, an escrow is not required. However, the lender must establish the source of funds that is used to pay for the improvements and address the impact on the borrower's qualifications if the funds are from other than verified available assets. In either of the above scenarios, the final energy rating (step increase and initial point increase) will determine the percentage reduction to be applied to the interest rate modification. Upon completion of the improvements (within 365 days of closing) according to previously approved plans, the completed Notice of Potential Energy Interest Rate Reduction (Form UND- 10) issued at the time of commitment, the initial and final energy rating must be submitted to AHFC Servicing as soon as possible after the completion of the improvements, but no later than 30 days after the final rating. The interest rate reduction as determined by the final energy rating will require execution of loan modification documents provided by AHFC. (Refer to the Servicing Guide Section D) Note: The cost of improvements may include a reasonable escrow administration fee charged by the lender. Lenders are reminded that the

7 appraised value or total costs, whichever is less, must support the loan amount requested..08 ELIGIBLE PROPERTIES Any property that can be energy rated and is otherwise eligible for AHFC financing.09 INSURER/GUARANTOR A. VA Guaranteed Loans 1. Regardless of loan-to-value, VA loan amounts as outlined in Section may be increased by up to $3,000 based on documented energy improvement costs; up to $6,000 provided the increase in mortgage payment does not exceed the likely reduction in monthly utility cost; or more than $6,000 subject to a value determination by VA. 2. VA processing in accordance with VA criteria is the responsibility of the lender. However, VA loans must be submitted to AHFC for approval or processed under the Delegated Underwriting Program. B. FHA Insured Loans Under the FHA Energy Efficiency Mortgage Program, the cost of any energy improvements determined by FHA to be "cost effective" may be added to the mortgage amounts up to the greater of: 1. Five percent (5%) of the property's value (not to exceed $8,000); or 2. $4,000. C. RD Guaranteed Loans All applicable RD requirements must be met. D. HUD 184 Loans All applicable HUD requirements must be met. Note: In addition to AHFC criteria, all insurer/guarantor requirements must be met to the satisfaction of the applicable insurer/guarantor. It is also important to note that AHFC s eligible properties include existing one-to-four family units while FHA's program limits eligible properties to existing single-family dwellings and duplexes. Other differences between AHFC's guidelines and the insurer/guarantor may exist.

8 .10 UNDERWRITING A. Proposed Improvements When processing a loan where energy improvements are proposed, and will not be completed prior to closing, the lender should underwrite the borrower's qualifications based on the program interest rate before any applicable interest rate reduction. The commitment is issued at the program rate. B. Borrowers Eligible for Subsidies/Grants Borrowers applying for energy efficient mortgages are often eligible for subsidies or grants under other energy programs. Lenders are cautioned that while these funds may be applied to the loan principal, down payment, or closing costs, the borrower must demonstrate the ability to cover the minimum down payment and closing costs from his/her own cash assets. The subsidy may be viewed as a source to cover the required two-month payment reserve or to cover the cost of the improvements. C. Tax-Exempt Loans If any energy efficiency improvements are planned as part of the transaction (including a subsequent modification of interest rate due to energy improvements made to the home after closing), the cost of the improvements must be included in the acquisition cost calculation..11 PROGRAM DOCUMENTATION In addition to the standard documentation outlined in Section 8000 and 8001, the following credit documentation is required. Home Energy Rating Certificate Notice of Potential Eligibility for an Energy Interest Rate Reduction Modification (Form UND-10), if applicable.