Help Clients Go Green With FHA
When you think of “going green” with mortgages … you likely wouldn’t think of Federal Housing Administration (FHA) loans. So it might come as a bit of a surprise that FHA can, in fact, be used as a great tool, giving your clients a real advantage if they want to be a green homeowner (GH)!
There are two aspects to “going green.” The first is with respect to the conservation of energy; the second is with the use of non-toxic building materials. The conservation of energy saves on heating and cooling costs, while the use of non-toxic materials is very important for health and environmental reasons. On the other hand, an energy inefficient home increases overall costs, while the use of toxic materials can damage health and actually create serious health problems like asthma, allergies, skin issues, headaches, eye irritation and dizziness. Needless to say, if these conditions are pre-existing, such materials will only serve to exacerbate them. It is quite synchronistic that, as I was writing this section on toxic materials, I was experiencing a slight headache, irritated eyes, lethargy and quite a bit of sneezing. I couldn’t figure out why, as I clearly didn’t have a cold. When I opened the door of my office, I discovered that the building management had torn down drywall in the offices surrounding mine, and the drywall dust was circulating through the vents! So I can personally vouch for the accuracy of those statements!
With these two green paths, the FHA has two programs that can assist a GH: The Energy Efficient Mortgage (EEM), and the 203k Rehabilitation loan. The purpose of this article is not to train you in the EEM or the 203k, but rather, give you an idea of how these loans can help your FHA clients go green with homeownership.
The FHA Energy Efficient Mortgage
The EEM is designed to help homebuyers or homeowners save money on energy costs by allowing them to finance them the costs of installing energy-efficiency systems (to a new or existing home) through a purchase or refinance. The EEM allows either constructing a home or retrofitting a home, with high-efficiency heating and cooling systems, insulation, windows, doors and roofing, any of which will result in energy conservation.
This is a truly remarkable program for homeowners who wish to weatherize their home to make it more energy efficient. For example, if your clients are purchasing a home, they can finance the cost of new storm windows, storm doors, thermostats and insulation. However … this program isn’t a free for all; it has to make sense (and cents), and the “energy package” must be determined by a Home Energy Rating Systems (HERS) report (this can be performed by a local utility company). Though this may seem like a complicated program, you’ll discover it really isn’t once you study the guidelines more thoroughly and work with an underwriter with experience reviewing EEMs.
The 203k Rehabilitation mortgage
FHA’s 203k Rehabilitation mortgage allows a borrower to purchase or refinance a home, while at the same time, financing the costs of renovation to the property. While you may not think about the “K” as being a green mortgage, the fact is it’s what the investor or homebuyer does with the money that determines its status. For example, the renovation can utilize non-toxic building materials such as non-VOC (volatile organic compounds) paints; sealants that contain polyether rather than urethane or silicone bases; plywood that is free of formaldehyde; and natural clay plaster for walls instead of drywall (gypsum board). In this way, the “K” can become the “Green K,” and help a borrower create a much healthier environment for the family living in the property. As more research comes to light concerning the impact of the toxic materials used in building materials, consumers will be opting to go greener when the time for renovation comes along.
The 203k’s potential in this market is huge. In my opinion, it is one of the most important products available to help the housing industry recover.
With high foreclosure numbers, the 203k is “THE LOAN” which can significantly reduce the time required to purge the market of real estate-owned (REO) and bank-owned stock. Not only would the REO stock move faster, but the banks could sell their REOs for higher prices. How? The condition of a typical REO property is often quite poor, and the typical homebuyer doesn’t have the cash to fix it up. As a result, the banks need to sell the property for a serious bargain in order to attract investors with the cash to renovate it. Enter the “K.” Now, a homeowner can move into a totally renovated home, the bank gets full market price for their REO, and thus, mitigates the loss they have to take on the current mortgage. (In February 2007, I wrote an article about the 203k loan making the same claim. I realize this is a tangent from the green topic, but I mention it whenever I can to create more awareness among mortgage loan originators and lenders about the potential impact the 203k can have on our housing market!)
From a marketing standpoint, imagine if you became expert in these programs. Consider how you would stand out from your competition! You could walk into any real estate office and talk about these products and create real excitement because of the great benefits these loans offer homebuyers. However, a word of caution! If you want to make this an FHA niche for yourself, do not do this alone; team up with an experienced MLO who can guide you through the learning curve! Most real estate agents and buyers have nightmarish stories to blog about because they worked with incompetent MLOs who had no idea what they doing! If you don’t have someone in your office that knows these loans, then do a Web search for experts outside of your market, and pay them to mentor you in these powerful programs. Your investment will more than likely pay for itself quickly as you establish yourself as an expert in your market.
Jeff Mifsud is founder of Michigan-based Mortgage Seminars LLC, a former FHA underwriter with 15-plus years of experience originating FHA loans, an FHA expert for LoanToolbox.com and creator of The FHA Originator, a monthly FHA newsletter. Jeff may be reached by phone at (248) 403-8181 or visit www.MortgageSeminars.com.
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