Several loans can help cut utility bills
By JEFF LAZERSON / CONTRIBUTING COLUMNIST
Tankless water heaters, cool roofs, updated heating ventilation and air conditioning, solar energy panels, better insulated windows and drought-resistant landscaping. All are excellent ways to tame the tiger in your mailbox that comes in the form of really expensive electric, gas and water bills.
And, yes energy efficiency improvements tend to increase your property’s value, help our environment and make great use of renewed energy.
Besides paying for these home improvements with savings or an equity line-of-credit, PACE or property assessed clean energy is a financing instrument that provides funding for up to 15 percent of your property value, not to exceed 100 percent of your property value when combined with all mortgage liens.
PACE financing is ideal if you have little equity in your home or if you have very small improvements in terms of dollar amounts and your existing mortgage rate is better than today’s rates.
Renovate America finances 80 percent of PACE residential activity. In the last four years, Renovate has supplied PACE loans to 3,474 Orange County homeowners for a total of $88.6 million. That’s an average of $25,503 per home, according to Ellen Qualls, their vice president of communications and public affairs.
“Seize the moment of opportunity to make homes more efficient,” she said.
But these loans aren’t cheap.
PACE interest rates run from 6 to 9 percent, typically amortized over 15 or 20 years with an additional loan origination cost of about 5 percent of your loan amount. Ouch!
The loans are repaid as its part of your property tax bill. And if not paid off, it does transfer to future owners.
PACE loans are approved on a city-by-city basis. Check with your local City Hall to see if they’re allowed in your area.
Another big hitch concerns mortgage lenders. PACE loans take a first-lien position.
Fannie, Freddie and most residential lenders are loath to be subordinate to this assessment.
Last week, Fannie Mae announced an expansion of its Home Style Energy Mortgage, taking direct aim at PACE.
Now, so long as you meet its standard requirements, Fannie is allowing you to refinance your existing PACE lien and your current mortgage or mortgages into one loan, labeling it a rate and term refinance.
Previous to last week, Fannie considered it a cash-out refinance when paying off a PACE lien. That meant more equity needed and higher Fannie fees.
You can receive up to 15 percent of the as-completed home value for energy efficiency financing-purchase and refinance with Home Style.
For example, let’s say you pay $500,000 for a really tired home. You can add $75,000 to the price for these energy improvements making your acquisition cost $575,000. If you were putting 10 percent down, it must be based upon the $575,000 number and an appraisal must support the higher as-completed value.
Under Freddie Mac’s homerun program, you can do energy efficient improvements with any Freddie loan program. There is no dollar limitation on the energy efficiency items.
Energy reports are required for Fannie’s Home Style, but not with Freddie’s homerun program. The reports can cost up to $600.
In addition, there is no preclusion to funding landscaping under the homerun program so long as they are energy conservation improvements.
Paying off existing PACE liens are currently treated with the higher cash-out refinance requirements, but Freddie is evaluating its position, said Freddie Mac spokesman Brad German.
Jeff Lazerson - Mortgage Columnist since 2011