Buying a home or refinancing your existing home? Use a low interest HUD 203K loan to fund energy efficiency and solar power improvements! Most energy improvements can pay for themselves immediately!
The federal Department of Housing and Urban Development's (HUD) Federal Housing Administration (FHA) provides loan guarantees to mortgage lenders for home purchases and refinancing. An exciting FHA loan offering is the "203K" loan that allows substantive upgrades to be made to the home, the cost of which can be included in the usual 30 year mortgage. This program is not limited to just low or even moderate income citizens. There are no income limits on obtaining a 203K loan. The only limit is on the amount of the loan, which is determined by region by FHA. In Santa Fe County, the current loan limit (to fund either the purchase or refinancing of the home and the cost of the improvements) is approximately $425,000.
All sorts of improvements to the home can be funded with a 203k loan: a new roof, painting, kitchen and bath upgrades, energy efficiency renovations (e.g. new windows, blowing insulation in the walls, attic sealing and insulation, new efficient furnace, etc.) and solar power systems (roof-top solar electric systems, solar thermal water heating or space heating systems, etc.). Even improvements to a groundwater well can be accomplished. 203K loans cannot be used for new homes (homes must be at least one year old) or to increase the "footprint" of the home (i.e. room additions).
Because energy efficiency improvements and/or solar systems reduce your monthly electricity, natural gas and/or propane expenditures, it's possible that the small increase they add to your mortgage payment will be more than off-set by the reduction to your energy expenditures! That means you're immediately better off financially! This is possible because the 203K loan allows you to both: 1) take advantage of mortgage interest rates (e.g. 4.5%) that are a lot lower than the interest rate associated with taking out a personal loan (possibly 7-8%), and 2) spread the costs of the improvements over the 30 year term of the mortgage, rather than just 8-15 years of other loans. Both of these loan benefits, combined, result in a much lower monthly loan payment than would be possible with more traditional loans available. So, it's possible that while a combination of appropriately selected energy efficiency and solar power upgrades may increase your monthly payments by $30-40 per month, your monthly energy utility bills may decrease by $50-80 per month!
Furthermore, as with kitchen and bathroom remodels, market experience confirms that energy improvements are later reflected in the higher sales price for your home – creating a secondary investment benefit.
If this opportunity is of interest to you and you're buying an existing homes, be sure to let your realtor know that you're interested in doing upgrades to the home you're going to purchase using the FHA 203K loan option. If you're refinancing your existing home and are interested in doing improvements to your home, be sure the mortgage lender you use does HUD/FHA 203K loans. Only certain lenders do FHA lending and, of those, only some of them do 203K loans. Hopefully, more HUD 203K loan lenders will enter the market as consumer demand increases for this great opportunity.
Homewise, a private non-profit organization, is a full service agency promoting affordable homeownership through financing home purchases and home improvements and providing financial counseling and classes. Unlike the FHA 203K loan, Homewise focuses their offerings on low and moderate income families. For home improvements, interest rates are low (approximately 4-6%) and can be financed over as long as a 30 year period – keeping the monthly loan payments as low as possible.
If your annual household income is under $103,050, Homewise may be able help you finance energy-efficient and water conservation improvements, routine maintenance and emergency repairs. Be sure to check directly with Homewise regarding their current program offerings, interest rates, and income limits! www.homewise.org (505) 983-WISE (9473)
Repairs that qualify for Homewise financing include:
• Roof repair or replacement
• Energy Star® windows and doors
• High efficiency furnaces
• Energy efficient cooling systems
• Solar Hot water
• Solar PV electric
• Water catchment and drip irrigation systems
• Disability modifications