An Introduction to Energy Efficient Mortgages FHA & VA Lisa Jordan, Starboard Financial What is an FHA EEM? Program Concept: Home that costs less to run/maintain, can afford more of a home. Finance energy efficient upgrades in mortgage amount. 1992 as a Pilot Program and expanded Nationally in 95. 1
Buy or refinance 1 to 4 family owner occupied homes. Combine with a 203b or a 203k loans. Improvements are tax deductible. How Does this Work? No additional qualifying criteria--borrower is qualified as if the energy package didn t exist. No additional down payment is required. No appraisal issues. Final Loan Amount can exceed FHA county maximums. How Does this Work? (continued) HERS Rating = determine the energy efficiency of home and recommend upgrades. Finance 100% of a cost-effective energy package. A cost-effective = Save more money on energy bills than the increase in mortgage payment. 2
How Does this Work? (continued) Homes already energy efficient, qualifying criteria are relaxed (new homes). Cost of energy package is subtracted from sales price (new homes). Cannot receive cash back or be paid for sweat equity How Does this Work? (continued) Improvement money in escrow account. Contractors paid when completed. Work complete within 90 days of closing. EEM Financing Formula A maximum of either A or B whichever is less: A. The dollar amount of cost-effective energy improvements, plus cost of report and inspections, or B. The lesser of 5% of: 1. The value of the property, or 2. 115% of the median area price of a single family dwelling, or 3. 150% of the conforming Freddie Mac limit EEM Calculator Can be Found in FHA Connection. ( The EEM Worksheet as well as the Worksheet included in the Energy Report on the Resource Page at the end of the presentation. ) 3
Determining the Maximum EEM Amount? To find the Median Area Housing Price go to: http://portal.hud.gov/hudportal/hud?src=/program_offices/housing/sfh/ee m/energy-r Scroll down to the Median Area Price link to open the current excel spreadsheet. Maximum EEM Amount Calculating the Maximum EEM amount for your area: Example for Maricopa County AZ The lesser of 5% of: $250,000.00 (Property Value) 163,000 x 1.15 = $187,450 (Median Area Price x 1.15) 417,000 x 1.50 = $625,500 (Freddie Mac limit x 1.50) Maricopa County AZ = Maximum $$ financed is 187,450 x.05 = $9372.50 Suggested EEM Improvements Sample Energy Upgrades: Upgrade Water Heaters Install Water Saving faucets/shower heads Install Water Saving toilets Install Energy Star lighting Upgrade or Replace HVAC equip. Tint Windows and Skylights Install Programmable Thermostats Replace Doors Replace Windows and Skylights Install CFL or LED light bulbs Seal or replace duct work Install sunscreens or shades Add or upgrade insulation Caulk or weather strip to reduce air infiltration Install whole house fans Upgrade Appliances Add Solar Window Screens or Awnings 4
What is a HERS (Home Energy Rating System)? Similar to a miles per gallon Rating for a Car. Evaluates how much energy a home uses. Home is compared to a computer model of same house called a Reference Home (same sq. ft., # of bedrooms etc.). Reference Home is given a score of 100 (new home built to code). HERS Rating Scale Rated as is, on a HERS scale of 0-100+. The lower the score the higher the energy efficiency 70 on E-Scale indicates that home is 30% more energy efficient than a typical new home built to code. Goal is to get to 0 a Net-Zero Energy Home. EPA Energy Star Home must score 85 or lower. How Does the Rating System Work? Average Rating for an Existing Home. Energy Star Home uses 15% Less Energy than a new Home Built to Code. Reference Home, Built to Code. This Home Uses 35% Less Energy Than the Reference Home. Net Zero Home (i.e., produces as much energy as it uses each year). 5
Energy Report Information Estimates annual energy use as is and then after improvements. Summary of existing features: How the home sits on the site, Levels of insulation in the attic, walls and floors, window sizes and types, Heating, air conditioning type and efficiencies, Hot water heater type and efficiency, Lighting, appliance use and efficiency, Local climate. etc. Recommends energy upgrades. Energy Report Information Estimated annual energy savings for each recommended improvement. Statewide average for the installed cost of each improvement. Estimates of the costs, annual savings and useful life of the upgrades. Estimated rating index of the home after the installation of the upgrades. Will EEM be Cost Effective? Package is cost effective if the increase in the mortgage payment, is less than the total present value of the energy saved over the useful life of the improvement. HERS Audit/Report Fees can be financed as part of the package, if: Entire package including those fees is cost effective. If not, the fees are considered allowable closing costs. 6
How Do I know if the Package is Cost Effective? If this number is larger, then the package is cost effective. What is the FHA Weatherization Program? Use alone or to supplement the EEM. Additional option when maximum dollar amount allowed under EEM won't cover the cost of the energy package. Add $2,000.00 to mortgage. (Additional amounts can be added subject to conditions) FHA Weatherization Program Can be used to finance: Insulation wrap for water heaters, Insulation of ducts and pipes in unheated spaces of heating/cooling systems, Attic insulation, Insulation for floors and foundation walls, Installation of weather stripping/caulking, Installation of storm windows/doors etc. Differs from the EEM: 1. Borrower must qualify for the additional amount. 2. Weatherization amount can t exceed FHA loan limits. 3. Additional down payment is required. 7
Steps in the EEM Process 1. FHA borrower decides to move forward with EEM financing. 2. Lender Contacts a HERS Rater to schedule the inspection. 3. Energy audit is performed and the improvement options are discussed with the buyer. 4. Borrower decides on which improvements they d like to make. 5. HERS provider sends energy report to the lender. 6. Borrower collects bids and chooses contractors (provision must be included in contract to show contractor is to be paid after improvements are completed). Steps in the EEM Process--Continued 7. Lender determines the final loan amount (including upgrades) 8. The loan closes and the improvement money is held in an escrow account. 9. The Contractor makes the improvements 10. The HERS inspector or FHA fee inspector does final inspection. 11. The contractor gets paid 12. The home owner enjoys a comfortable home and saving money! VA Energy Efficient Mortgage Programs VA Lender s Handbook, Chapter 7, section 3 http://www.benefits.va.gov/warms/pam26_7.asp Purchase or refinance a home Can finance up to $3,000 based solely on documented costs (receipts etc.) From $3000 to $6000, the lender must determine increase in monthly mortgage payments does not exceed the likely reduction in monthly utility costs. More than $6000 requires VA Approval If the work is performed by the Veteran, only the cost of materials can be financed 8
VA Energy Efficient Mortgage Program Acceptable energy efficiency improvements include, but are not limited to: Caulking and weather-stripping Limited furnace efficiency modifications or energy efficient furnaces devices for modifying flue openings which will increase heating efficiency Electrical or mechanical furnace ignition systems which replace pilot lights Thermostats Insulation for ceilings, attics, walls floor and water heaters Storm windows and/or doors, including thermal windows and/or doors Heat pumps Vapor barriers Solar hot water systems and heating or cooling systems Resources HUD 4155.1 EEM 6.D.1 and EEH 6.A.7 http://www.hud.gov/offices/adm/hudclips/handbooks/hsgh/4155.1/4155 1HSGH.pdf Mortgagee Letters: http://portal.hud.gov/hudportal/hud?src=/program_offices/housing/sfh/ eem/eemlette EEM Information Page: http://portal.hud.gov/hudportal/hud?src=/program_offices/housing/sfh/ eem/energy-r Sample EEM Worksheet: http://tinyurl.com/eemworksheet Copy of a Energy Report: http://tinyurl.com/ratingreport Area HERS Inspector To Do List EE Contractors (Paid at completion) Green Real Estate Agents 9
National Association of Realtors Sell more homes REO s Home Inspection Repairs 10
Realtor Meetings http://youtu.be/jtibmnfjawg 11
Thank You! Lisanne Jordan NMLS# 197164 ljordan@starboardmail.com 480-231-3719 BK0101725 12