Green Financing Updates And Tips For Homes

As Chicago real estate enters its traditional deep freeze of January, thankfully FHA’s Energy Efficient Mortgages (EEM’s) financing tools have been retained for home buyers in 2010.   As many as 55% of entry level home buyers reported that they used FHA loans for purchasing their home in 2009.

Fannie Mae and Freddie Mac have reportedly discontinued the EEM program for primary lenders according to the the National Association of Home Builders Research Center. If you’re considering an energy-efficient remodel of your home or building a new one from ground up, visit the FHA Energy Efficient Mortgages website section and find a local banker familiar with the programs well before embarking on your project.  These types of loans are great as they may help to finance the energy upgrades.

Another financing option that you (especially your builder / remodeler) should be aware of are PACE bonds. This is a bond where the proceeds are lent to homeowners to finance energy retrofits (efficiency measures and small renewable energy systems) and then repay their loans over 20 years via an annual assessment on their property tax bill. PACE bonds can be issued by municipal financing districts or finance companies and the proceeds typically can be used to retrofit both commercial and residential properties. The PACE bond market has the potential to encourage energy retrofitting of existing homes where the homeowners may not have otherwise had access to financing to pay for those types of improvements.

PACE is rooted in traditional land-secured municipal finance. There are two major characteristics, however, that make PACE unique. First, property owner participation is 100 percent voluntary. Only those property owners who choose to participate in the PACE program pay additional costs. Second, the bond proceeds are used to pay for prequalified clean energy improvements on participating properties. Improvements that property owners often choose from include renewable energy technology like solar panels, energy efficiency projects like a high efficiency furnace, and in some states water conservation measures.

The following states have passed enabling legislation: California, Colorado, Illinois, Louisiana, Maryland, Nevada, New Mexico, Ohio, Oklahoma, Oregon, Texas, Vermont, Virginia, and Wisconsin, and legislation is pending in Arizona and New York. Florida and Hawaii have existing ability to launch PACE programs. In these states, it may be worthwhile to explore whether PACE bond financing is available for local homeowners that wish to undertake energy efficiency retrofits and to educate your builders and remodelers on this potential source of financing.