Fannie Mae HomeStyle Energy Home Improvement Loan
What is a Fannie Mae HomeStyle Energy Home Improvement loan?
Fannie Mae offers Home Improvement loans for home buyers and existing homeowners. These loan programs are called HomeStyle Home Improvement loans. There are two types of HomeStyle Home Improvement loans. The HomeStyle Home Improvement loan is used when the improvements do not include energy efficient or green technologies.
When the improvements include green energy, solar or high energy efficient improvements than HomeStyle Energy Mortgage Loan enables borrowers to finance the cost of energy efficient home improvements when buying a home or refinance an existing mortgage.
In addition to financing cost reducing energy efficient home improvements, borrowers have the ability to include general home improvement cost as well.
These general home improvement cost may be upgrades to reduce energy costs, provide safety to the home, and update and or improve the style and comfort of the home.
A borrower who purchases or owns an older home may need to make upgrades like, improving the efficiency of hot water heaters, air conditioning, insulation, and windows as well as updating the cosmetics of the property which will add value to the home.
Under Fannie Mae HomeStyle Energy home improvement loan, borrowers may also save money on possible tax credits, rebates, utilities and repair costs in the future. They may also qualify for the $3.500 allowance for weatherization.
How to qualify for a Fannie Mae HomeStyle Energy Home Improvement Loan?
Qualifying for a HomeStyle Energy Home Improvement loan is very similar to qualifying for a Conventional Mortgage Loan for buying a home or refinancing a home. The income and credit requirement for a HomeStyle loan are the same as a conventional mortgage loan. The main difference between the home improvement loan and a conventional mortgage is how the property value is determined in a real estate appraisal.
Under most home improvement mortgage loans, like HomeStyle, the real estate appraised value is pre-determined based on the final value of the home after all improvements are made. Therefore, the borrower will be required to submit a list of work items, estimates and bids from contractors to the real estate appraisal before the loan can be approved.
HomeStyle Requirements:
- Standard Conventional Mortgage Loan Requirements apply.
- The borrower can borrow up to 95% of the value of the homes future value that includes the cost of improvements for a single family home.
- A first time home buyer must complete the homeownership education at Fannie Mae HomeView.
- The energy home improvements may be up to 15% of the appraised property value.
- One to four unit existing properties are eligible for this type of loan.
- Manufactured homes are included as long as there are no structural changes.
- All home improvements and repairs must meet all local zoning, permitting and building codes.
- All Fannie Mae Homestyle loans must have an appraisal. The appraisal must be for the interior and exterior of the home and be completed on the appropriate form. The appraiser must determine the “as completed” value of the property prior to the work being completed.
- A certificate of completion is required when the mortgage is delivered prior to the completion of the home improvements.
- The Fannie Mae HomeStyle Loan requires the mortgage be secured for purchase or refinance, prior to the home improvement projects being started. The Lender releases the funds from an escrow account directly to the contractor.
- Properties are eligible even if they are not located within areas with an official declaration by and local, state or federal agency.
- HomeStyle Energy Home Improvement loans will require an independent accessor to verify the requested improvements satisfy the energy efficiency standards of HomeStyle.
When should I use a Fannie Mae HomeStyle Energy Home Improvement Loans?
If you are purchasing a home, and would like to make improvements to home listed for sale, you can use the HomeStyle loan program to include the cost of the improvements all within one first mortgage loan. This means that the funds appropriated for repairs, remodeling, energy efficiency improvements will be held in escrow and released to each contractor as the work is completed.
If you currently own a home, and you would like to improve the property, than you can use the HomeStyle loan program to refinance your current mortgage, which will be paid off and include the cost of home improvements and upgrades all within one mortgage loan.
Below are examples to assist with choosing this type of loan.
1. This loan would be a good option when the borrower is looking to improve the energy efficiency, safety and comfort of their home.
2. The purchase of an older home would make this a good choice.
3. A homeowner who is paying too much in energy costs.
4. A homeowner who is has existing energy improvement debt to pay off.
5. The home is in a high risk natural disaster area.
What natural disasters, resiliency improvements and/or environmental home improvements would a Fannie Mae HomeStyle Energy Home Improvement Loan cover?
While cosmetic improvements have a direct impact on the value of the home, making improvements that strengthen the property will help protect both the lender and borrower natural disasters like flooding, hurricanes, earthquakes and more.
If the property is located in an area prone to have natural disasters like hurricanes, flooding and earthquakes, then HomeStyle will give the borrower the ability to strengthen and fortify the property to help minimize the damage caused by the anticipated natural disasters.
- Storm surge barriers.
- Waterproofing and drainage.
- Hurricane Windows, shutters.
- Foundation retrofitting for earthquakes.
- Hazardous brush and tree removal in fire zones.
- Retaining walls to address mud or water flows.
- Solar Panels
What is a Qualified Energy Accessor and why do I need one?
Under HomeStyle Energy Home Improvement underwriting guidelines, applicants will be required to provide supporting documentation that the scope of work to improve the property meet the minimum guidelines for energy efficient improvements.
A Qualified Energy Accessor can take the scope of work, and provide a written report to verify the improvements qualify as energy efficient. The Department of Energy (DOE) Home Energy Score website may be helpful in locating a qualified accessor. The HERS website will have local qualified energy assessors.
There may be local or state home energy certification or audit programs that will provide a comparable report.
The repairs and improvements must be in compliance with local building codes, permits and zoning. The lender may work with the borrower to find solutions that will meet or exceed the local standards for environmental or natural disaster remediation and resiliency.
Do all HomeStyle Energy loans require an Energy Report?
No. Some property improvement under HomeStyle do not require a third party Energy Report. In some cases, the applicant may qualify for an Energy waiver depending on the scope of work to be completed as determined by the applicant in their request for this loan program.
When are Energy Report waivers issued under Fannie Mae HomeStyle Energy Home Improvement Loans?
In some cases, as determined by the scope of work listed by the applicant, an Energy Report waiver will be issued. There are some home improvement projects that do not require an Energy Report. The common list of reasons why an Energy Report will be waived are listed below.
- Environmental hazard damage repairs or resiliency improvements.
- Basic weatherization and water efficient home improvements up to $3,500.
- ENERGY STAR, certified products.
- Renewable energy sources such as solar panels, wind power devices, geothermal systems.
- Water efficiency devices.
- Radon Mediation
Types of Home Improvements covered by the $3, 500 allowance for weatherization?
When the improvement cost are less than or equal to $3,500, the applicant can receive a waiver from obtaining an energy report based on the following list of eligible improvements.
Below is an example of acceptable items.
- Replacing doors and windows.
- Replacing or installing installations (attic, floors, walls, basement).
- Sealing air leaks (weather stripping doors, plumbing penetrations, caulking windows or cracks).
- Sealing duct work for the HVAC and installing installation to system.
- Replacing old thermostats with smart ones and equipment controls.
Will HomeStyle include previous financed loans for energy related improvements?
In some cases, an existing homeowner may have acquired qualifying HomeStyle Energy Efficient improvements using alternative financing. In the event an applicant submits a new application for HomeStyle loan to make additional improvements, the previous financed items may be paid off and included into the new HomeStyle loan.
There are a few options for a homeowner/buyer to pay off previous debt for home improvements. We have listed additional information below.
- If the previous loan is a PACE loan, documentation must be provided proving the funds will only be used to pay off the PACE loan, which was obtained for home improvements on the said property.
- The borrower must provide copies of invoices or receipts to document the cost of expenses in the event the debt was secured or unsecured, but used to finance energy related home improvements.
- The borrower may only refinance home equity loans, PACE financing, used for energy home improvements.
- Cash is not eligible.
Conclusion
A Fannie Mae conventional mortgage loan HomeStyle Energy Loan may be a great option for many borrowers. HomeStyle gives home buyers and existing homeowners the ability to make significant improvements to the property the will not only increase the value of the property, but can safeguard the property from excessive utility costs and minimize affects of natural disasters.
