WASHINGTON -- Homeowners looking for a way to pay for energy improvements could find help in new programs from the Federal Housing Administration and mortgage investor Fannie Mae.
FHA's is called "PowerSaver" and allows eligible owners to borrow up to $25,000 at fixed rates between 5 percent and 7 percent for as long as 20 years to finance retrofits including high-efficiency windows and doors, heating and ventilating systems, solar panels, geothermal systems, insulation, and duct sealing.
PowerSaver officially is a pilot program, but HUD Secretary Shaun Donovan estimated that 30,000 PowerSaver loans will be closed in the next two years and it eventually could become a major national program for residential energy upgrades.
Most participating lenders are expected to encourage owners to sign up for an energy efficiency analysis by a certified specialist. The analysis should pinpoint where the house is inefficient in energy use and should recommend specific upgrades or additions.
FHA will insure the loans under the following guidelines:
● The house must be a principal residence, detached and single-family only.
● The borrower must have a FICO credit score of at least 660, and total household monthly debt-to-income ratio cannot exceed 45 percent.
● The combined primary mortgage debt plus the PowerSaver loan cannot exceed 100 percent of the appraised market value of the house.
Lenders are likely to take an extra hard look at income and asset documentation because, unlike other FHA-insured mortgages, PowerSavers will cover only 90 percent of the lender's loss or insurance claim in the event of a default.
Eighteen lenders across the country have signed up so far to participate, ranging from giant Quicken Loans to regional and local players such as Stonegate Mortgage in the Midwest and Pennsylvania-based AFC First Financial Corp. A spokesman for Quicken Loans said the company hopes to offer PowerSaver in as many as 34 states during the pilot period.
PowerSaver's biggest plus is its low fixed interest rate and long term. The main potential drawback: Because the program permits total household mortgage debt loads of up to 100 percent of market value, there's the chance that some borrowers could encounter payment problems if they experience even slight income declines or if property values in the area decrease.
Fannie Mae's program folds the cost of the improvements -- capped at up to 10 percent of the estimated market value of the house after the efficiency enhancements -- into the mortgage amount itself.
Most single-family properties except manufactured houses and cooperative units are eligible for the program, which is now available through participating lenders nationwide.
Fannie requires an audit by a certified Home Energy Rating Systems expert upfront to justify the proposed modifications to the house as truly cost-efficient. The audit must be paid for by the borrower, but Fannie will credit an extra $250 through the lenders to partially defray this expense.