Question

We'd like to buy an existing house and "green" it. Can we finance the improvements?

Asked by Sarah
Cary, NC

We are expecting baby #3 and need more bedrooms.  We'd like to put 20% down but aren't certain we'll be able to -- it depends on whether we sell our current house or keep it and rent it out. There will also likely be some cosmetic improvements that would go along with the greening -- paint, flooring, light fixtures, possible bathroom upgrades. We had looked into this once before and the only financing we found required 25% down for the total of the home sale price plus the money we wanted to put into the house. At that point it made more sense to just get a mortgage with 10% down and do the contruction with cash; however, the cash was going to be tight. I'm wondering if there are other options out there.

Answer

Ryan Flegal

Answered by Ryan Flegal

Los Angeles, CA

Ryan Flegal, Broker - PropertyMix, Inc.

February 9, 2011

There are great options available for renovation financing for your home purchase. 

  • Loan programs are available both for people looking to refinance and repair their existing home, and
  • for those looking to purchase a house and fix it up. These products  will allow the homebuyer to finance the purchase as well as post-sale renovations including room additions, cosmetic repairs and energy efficiency upgrades.


Ask your bank if they have a renovation loan available. Loan products change, so just because your local bank or credit union didn’t offer a renovation loan before with a low down-payment doesn’t mean that they won’t have it now.

Jeff Bricmont at Go Green Lending recently told me about a renovation loan program he can provide that requires as little as 5% down payment and bases the total loan on the anticipated future value of the property after your renovations are completed. So you get the loan to purchase the property and then a loan of more money to do the renovations, all wrapped into one loan and without an expensive interest rate more commonly associated with construction loans.

The Federal Housing Authority (FHA) also offers government-insured loan programs that you might like.

  • There are limits on the property values for these loans (so no mega-mansions), but FHA loans may allow you to borrow up to 97% of the value of the property (as little as 3% down payment).
  • The FHA 203(k) loan is the renovation loan program they have.

With the 203(k) program you may be able to borrow 110% of the home's value (with a small down payment) so that you can purchase the property and then fix it up.

There is a Solar Energy Increase, allowing you to borrow even more money if funds are used for solar power installations. And the loan can be used in conjunction with the Energy Efficient Mortgage Program (EEM Program) to finance energy efficient improvements to a house, like weather stripping, efficiency improvements in heating and air-conditioning, added insulation, etc.

Here are links to Green Home Guide’s green finance articles and green mortgage resources, many of which can help you with the loan programs mentioned above.

The growing choices of renovation financing plus the new loan products for solar and energy efficiency are making it more affordable and user-friendly to finance improvements to your home, especially improvements that will cut your energy costs and benefit the environment. I hope with your tight budget and growing family that one of these loan programs will help you get a great house fixed up the way you want it.
 

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