The Ultimate Guide to FHA Energy-Efficient Mortgage Loans
Have you ever wanted to pay lower premiums on your mortgage andlower your energy bills simultaneously? It might sound too good to be true, but the Federal Housing Authority (FHA) energy-efficient mortgage program makes this a reality!
FHA energy-efficient mortgage loans were formally launched in 1995 and designed to encourage people to develop sustainable homes.They provide an array of benefits to borrowers and are safer than conventional loansas they’re insured by the FHA. But how do FHA energy-efficient mortgage loans work?
Here’s a breakdown of some of the main aspects of energy-efficient mortgage loans.
What Are FHA Energy-Efficient Mortgage Loans?
Imagine taking out a loan to buy a home andrenovate it with energy-efficient fixtures and appliances. That’s what FHA energy-efficient mortgage loans are all about! Energy-efficient fixtures such as LED lights and solar panel arrays reduce the average energy usage of a home. This lowers homeowners’ utility bills and frees up funds that can be used to pay back higher mortgage premiums.
This is how the FHA justifies giving out energy-efficient mortgage loansthat are valued more than regular home loans!
The Math behind FHA Energy-Efficient Mortgage Loans
Let’s look at an example to illustratehow FHA energy-efficient mortgage loans work. Suppose you’re interested in purchasing a home worth $330,000 that’s estimated to produce an average monthly utility bill worth $5,000.You consult a licensed mortgage lender, and they offer you a regular home loan with an annual interest of 8% over a 15-year loan period.
In this scenario, you’ll pay $22,000 a year, which is the total cost of the home divided by 15 years. You’ll also be liable to pay an additional $1,760 per year on top (equivalent to 8% of your yearly payment) and $5,000 per year for energy. This means your total cost will be $28,760 per year.
Now, suppose you want to outfit the home with energy-efficient appliances and fixtures that’ll reduce your energy bill to $1,500 per year. The appliances and fixtures will cost $20,000—which means the total cost of the home will be $350,000.
If you take out an FHA energy-efficient mortgage on the same terms, you’ll end up paying approximately $23,333 per year for the home plus, $1,866 in interest, and $1,500 per year for bills for a total of $26,699. This is over a grand lower than if you went for a regular home loan—and you’ll end up with a more sustainable home that generates low energy bills!
Types of Improvements to Make
FHA energy-efficient mortgage loans cover numerous sustainability improvements such as installing solar panels on a home’s roof and grey water tanks in toilets. They also cover HVAC replacements, chimney installations/repairs, and window insulation measures.The loans cover everything from the cost of materials to the labor costs for installation and inspection.
It’s common for bodies like Energy Star to send a home energy assessor to the borrower’s home to suggest energy efficiency measures as part of a comprehensive home energy assessment. Home energy assessors specialize in evaluating residential energy service networks and auditing the net energy consumption of a home. If the assessor concludes that the cost of installing energy-efficient measures is equal to or lower than the estimated reduction in energy bills from installing them, the borrower is granted an FHA energy-efficient mortgage!
Qualification Requirements
FHA energy-efficient mortgage loans are available to anyone that qualifies for regular FHA loans. In other words, if you have a fair credit score of 580, a steady income, and the ability to settle a 3.5% down payment, chances are you’ll be approved for an FHA energy-efficient home loan!
It’s also worth noting that the FHA solely looks at the cost of the home when granting energy-efficient mortgage loans. Therefore, you’ll quality for an FHA energy-efficient mortgage if you meet the FHA’s loan requirements irrespective of the cost of making sustainability improvements.
For instance, suppose you’re interested in purchasing a home worth $350,000 and renovations will cost $50,000. As long as you make a $12,250 down payment (equivalent to 3.5% of the home’s value as per FHA requirements), you’ll be granted an FHA energy-efficient mortgage irrespective of how much it’ll cost to make the energy-efficient improvements!
The Benefits of FHA Energy-Efficient Mortgage Loans
FHA energy-efficient mortgage loans help borrowers become the proud owners of modern, sustainable homes that generate minimal utility bills. These homes also have a higher resale value—especially if they’re sold to environmentally conscious buyers in the future.
If the energy-efficient fixtures installed in a home through this type of mortgage are carefully thought out, it’s possible to sell the home for more than the purchase price. In other words, FHA energy-efficient mortgage loans have the potential to generate a profit for borrowers even after accounting for premiums!
Atlantic Home Capital Helps Clients Apply for Numerous Types of Mortgage Loans
The exact terms and conditions of FHA energy-efficient mortgage loans depend on your financial circumstances and the mortgage consultants you speak with.If you’re seeking an expert mortgage broker in Fort Lauderdale that specializes in various types of FHA loans, come speak to our team at Atlantic Home Capital!
Our team of seasoned mortgage consultants helps clients get the best terms possible on numerous types of home loans such as modular mortgage loans for those interested in buying prefabricated homes. We also help clients obtain mixed-use financing to purchase mixed-use buildings and jumbo non-conforming mortgage loans for those interested in purchasing high-value real estate.
Ready to purchase a home and install the latest sustainable fixtures through an FHA energy-efficient loan? Leave us a message on our website or email us at jdeblasio@athccorp.comand we’ll do our utmost to help!
