Mortgage Lenders Blog and Resources

A home uses a lot of energy, which impacts the environment as well as your wallet.  The average monthly utility bill for a home in the United States is nearly $400, with approximately $115 of that bill accounting for the cost of energy use (heating, cooling, lighting, etc.). And household energy accounts for 20 percent of greenhouse gas emissions in the United States. What if there was a way to offset both spending hundreds of dollars on utilities each month and contributing to greenhouse gas emissions? Table of Contents: Why you should buy an energy efficient home or invest in energy efficient upgrades Energy efficiency upgrades Options Priority upgrades Energy efficiency financing options How to qualify for energy efficiency financing Question and answer with an energy efficiency expert Why you should buy an energy efficient home or invest in energy efficiency upgrades An energy efficient home can save you 25 percent on utility bills, amounting to over $2,200 in annual savings. These savings can make up for the higher price tag of an energy efficient home and help relieve financial stress while paying down a mortgage. If you currently have a home, investing in home energy efficiency upgrades could save you hundreds of dollars each month. Not to mention that making energy improvements will raise the value of your home, bringing in extra cash if you decide to sell in the future.   Additionally, an energy efficient home purchase, or investment in upgrades, has a positive impact on the environment — reducing electricity and fuel use that contributes to a large percentage of greenhouse gas emissions in the United States. Greenhouse gases are a leading cause in climate change and making even the smallest of energy use adjustments in your home can benefit the environment. Energy efficiency upgrades Focus on where you’re using the most energy in your home and the cost-effective fixes available to you. Home energy use More than half of the energy consumption in your home comes from heating and air conditioning — combined, heating and cooling account for approximately 51 percent of energy use. Beyond heating and cooling, water heating accounts for nearly 20 percent of energy use with lighting, refrigeration, appliances, and TV and media products accounting for the remainder of energy used in a home. It is worth noting that while heating and cooling are combined in the graph above, heating actually accounts for approximately 46 percent of home energy use on its own. Home energy upgrade options There are many energy efficiency upgrades you could make to your home. If you want to do them all, more power to you, but you don’t need to do everything at once. Insulation Insulation is key to reducing heat loss in your home and is a recommended home energy upgrade.  Insulation makes the biggest difference when installed in the attic, basement, or crawl space — any spaces where there are likely to be more air leaks. And insulating these spaces can save you up to 15 percent on your heating and cooling costs. There are different types of insulation available: Blanket batts and rolls Spray foam insulation Blown-in insulation Foam board or rigid foam panels Reflective or radiant barrier If you’re looking for a DIY insulation option, blanket batting or rolls is an easy installation that is also cheaper than other insulation types. Another popular option is spray foam insulation, which would need to be installed by a professional. There are two types of spray foam: open cell and closed cell foam. Closed cell foam has a higher insulation value, but will be more expensive than its open cell counterpart. Insulation costs will be entirely dependent on the type of insulation you choose, but you may want to budget between $1,500 and $3,500. Solar panels Solar panels have become a popular clean energy option over the last decade. Purchase and installation has become more affordable, making it easier to save money on your utility bills, while also reducing your carbon footprint. Additional incentives for installing solar panels include a U.S. federal tax credit of 30 percent, as well as state-specific tax credits and rebates. To know exactly which tax credits and incentives are available in your area, you can speak with your solar provider. While solar panels are designed to generate energy from direct sunlight, they can still be a viable option for those who live in cooler climates — photovoltaic solar panels are an all-climate option. The cost of solar panel purchase and installation ranges from $17,000 to $24,000. New doors and windows Old windows and doors can account for a significant portion of your heating bill through heat loss. It can be costly to replace windows and doors, and if you’d prefer to invest in a more cost-conscious option you could insulate windows and doors instead. Replacing doors could cost you $900 to $2,600. Replacing windows can cost anywhere from $400 to $900. Smart fixtures The fixtures in your home, such as your thermostat, lights, and power outlets, can use a lot of energy. But, you can purchase light switches, outlets, and thermostats that can help you control your energy use instead of eating it up. Smart thermostats, in particular, are a recommended fixture that can control how much heat and air you use in your home. A smart thermostat can cost anywhere from $100 to $500, while installation can cost anywhere from $200 to $500. This may seem like a steep cost, but it could save you hundreds of dollars each year. Not to mention the positive impact it can have on the environment — according to Energy Star, 13 billion pounds of greenhouse gas emissions (equivalent to emissions of 1.2 million motor vehicles) could be offset each year if everyone used a smart thermostat.  New water heater The second highest cost on your utility bill, after heating and cooling, is water heating. Replacing a water heater can cost anywhere from $500 to $1,800, but could save you upwards of $100 a year on your utility bill. Furnace filters It is recommended to replace your furnace filter every three months, or at least once a year, depending on the size of your furnace. It is important to replace the filter regularly because an old, dirty filter will require your furnace to work much harder, using up much more energy that it would otherwise. Priority energy upgrades As seen above, there are many energy efficiency upgrades that you can make in your home, and that doesn’t mean that you need to do all of them.  If you’re unsure where to start in completing energy efficiency upgrades, it is best to start with smaller, simple fixes, allowing you to prepare for larger upgrades down the road. Energy efficiency financing options In most cases you can finance energy efficiency upgrades or a home purchase through your mortgage, but it is important to work closely with your lender. Beyond a mortgage, there are various options available to finance an energy efficient home purchase or energy upgrades: Energy Efficient Mortgage (EEM) An Energy Efficient Mortgage (EEM) can be used to purchase or refinance an energy efficient home, like an ENERGY STAR certified home, or to finance energy efficient improvements to your current home. EEMs are backed by either private lenders or federal mortgage programs through the Federal Housing Administration (FHA) and Veteran Affairs (VA). Department of Energy’s (DOE) Weatherization Assistance Program The U.S. Department of Energy (DOE) Weatherization Assistance Program (WAP) is intended to cover the costs of energy efficiency improvements for low-income households. Each state has specific weatherization services and WAP programs that can connect you with local weatherization organizations. Fannie Mae HomeStyle Energy Mortgage With a Fannie Mae HomeStyle Energy Mortgage you can borrow money to purchase or refinance an energy efficient home, reduce utility costs by financing energy efficiency upgrades, and/or finance natural disaster damage prevention improvements to your home. For weatherization upgrades you can finance up to $3,500 without acquiring a home energy report, and borrowers may also qualify for a $500 Loan Level Price Adjustment (LLPA) credit. Freddie Mac GreenCHOICE mortgage (home purchase or refinance) Finance an energy efficient home purchase or energy efficiency upgrades with a Freddie Mac GreenCHOICE mortgage. In most cases you must have an energy report to apply for financing, but for basic upgrades less than or equal to $6,500 an energy report isn’t required. GreenEnergy Money GreenEnergy Money (GEM) is an organization that offers financial solutions for new energy efficient home builds and retrofit projects. GEM partners with mortgage and financial companies, as well as builders and developers, allowing affordable energy reductions to be made in communities across the country. Property Assessed Clean Energy Programs (PACE) Property Assessed Clean Energy (PACE) programs exist for both commercial and residential properties. PACE programs offer solutions to cover the upfront costs of energy and energy improvements. PACE financing is tied to a property, not individuals. On-bill financing (OBF) & On-bill repayment (OBR) With on-bill financing (OBF) or on-bill repayment (OBR), a private lender or utility provider arranges financing to fund energy efficiency or renewable energy improvements. These loaned funds are added and repaid through existing utility bill payments. OBF and OBR are typically low-to-no interest rate financing options, but are not available in all regions or states. How to qualify for energy efficiency financing In most cases, qualifying for an energy efficiency mortgage or other financing services requires a home energy rating. Your home is rated on a scale from 0 to 150 with a lower score indicating a more energy efficient home.  To get a home energy rating you will need to schedule a home energy assessment with a certified home energy rater. The energy rater will inspect multiple features in your home such as insulation, windows and doors, heating and cooling systems, and potential air leakage. After this inspection, you will be given an energy rating and energy report. The report will include energy efficiency improvement suggestions and estimated costs, as well as potential annual savings. To qualify for financing if you are purchasing an energy efficient home, your home energy report must indicate that the home is energy efficient.  To qualify for financing for home energy efficiency upgrades, your home energy report must indicate that the upgrades will make the home more energy efficient and that these improvements are cost-effective. Bonus: Question and answer with an energy efficiency expert We asked Anna DeSimone, an energy efficiency expert and author of “Live in a Home that Pays You Back  A Complete Guide to Net Zero and Energy-Efficient Homes,” some common questions that homeowners might have when approaching the topic of energy efficiency. 1. What are common financing options for purchasing an energy efficient home or financing energy efficiency upgrades? Are there certain options that you would recommend? Homebuyers looking to complete energy improvement are able to finance a good portion of the improvement costs with their mortgages. The amount of costs can be as much as 20 percent over the purchase price. Mortgage lenders who are authorized to originate loans to Fannie Mae, Freddie Mac, FHA or VA can offer such programs.  Lenders generally require an energy assessment, along with an estimate from a licensed contractor. If you’re planning to purchase or lease solar photovoltaic panels, they would ask for copies of the agreements. For smaller projects (less than $5,000) energy assessments are not required.  2. What are the priority energy efficiency improvements homeowners should make? Most energy consultants recommend that homebuyers upgrade the heating, ventilation, and air conditioning (HVAC) system — since a good operational system helps deliver the maximum efficiency.  Upgraded HVAC will improve indoor air quality, and today’s technologies have systems that capture biological pollutants and other toxins that result in cleaner air and a healthier environment for your family and pets.  Other key energy measures include adding extra insulation, air sealing, and installing energy-efficient doors and windows. Small changes can make a difference — such as programmable thermostats and LED lighting.  3. What if you don't own your home? What energy efficiency improvements could you make? People who are renting a single-family home could “lease” solar photovoltaic panels. However, renewable energy systems require upgraded electrical systems which may not be feasible.  Renters of condos, townhouses, and apartments can reduce their energy by installing window treatments (shades or curtains) that help keep the warm air inside in the winter, and reduce the heat of the sun in the summer. Other changes can include buying Energy Star appliances, LED lighting, and programmable thermostats.  4. When buying a house, how do you know it's energy efficient? What should you be looking out for? Most homebuyers order a professional home inspection which assesses the entire structure of the home, HVAC, and its operational systems. To determine whether or not the home is energy-efficient, homebuyers can also order a home energy assessment from a professional rating company.  The home energy rater will assign a relative performance score such as the well-known HERS Energy Score from the Residential Energy Services Network (RESNET). You can learn about the HERS Index, Energy Score, and locate a HERS energy rater on the RESNET website.  The U.S. Department of Energy offers a program called Home Energy Score, and provides detailed explanations about the testing process and assessor locator by zip code.  5. Should energy efficiency upgrades be a priority for homeowners? Energy efficient upgrades are best completed in an efficient manner.  An outdated HVAC system, or insufficient electrical panel can become a home’s “weakest link” when you’re attempting to reduce energy. If you are considering a solar photovoltaic system (or other type of renewable energy system such as geothermal, wind, or power) keep in mind that such systems are far more effective on homes that are well-insulated and with sound operational HVAC systems.  The results of your home inspection report — coupled with an energy assessment — can be the basis for developing a strategic plan. Many important priorities in a home need to be met for your family’s health and safety, and each of these priorities can be implemented in accordance with your household needs, budget, and environmental goals.   

Guest Post by Grant McDonald According to a Gallup poll released in 2020, the majority of Americans believe real estate is the best long-term investment option among a variety of investment possibilities. Real estate takes the top spot on the list of favored long-term investments with 35%, followed by equities (21%), gold (16%), and savings accounts (17%). At 8%, bonds are the least favored long-term investment. If you know how to do it correctly, flipping houses may be a profitable real estate investment option. But, of course, securing funding for a flip is critical since you can't perform repairs and flips without money, right? Hard money loans are a terrific strategy for real estate investors to generate money and create wealth quickly. If you're thinking about using hard money loans for your next fix and flip, here's what you should know. Why hard money loans are a good option  A hard money loan, also known as a fix and flip loan, can help a beginner flipper working on one flip and a seasoned rehabber working on several flips simultaneously to succeed. Many other types of property investment projects can be financed using hard money loans. “There are obviously a lot of expenditures associated with flipping a house for the resale market: borrowers must take into account the purchase price of the property, the cost of renovations, and the possibility of unexpected expenses,” says Joshua Blackburn of Evolving Home. Using hard money to scale your investment properties is a particularly effective strategy, as it allows you to take on projects progressively with little money down. Hard money loans also reduce the amount of money a flipper has to invest in a home during the renovation process directly. What to do before applying for a hard money loan If you want to get your hard money fix and flip loan approved quickly, it’s important to be prepared.  That involves knowing your private lender, how much money they typically lend, the interest rate they charge, and any other conditions they may impose. You'll also need a workable budget, as well as a complete accounting of your cash on hand and alternative financing choices. After you've nailed down these elements, you'll be prepared to look at property leads with new eyes and a strategy in mind. In addition, look for homes that are priced just around your lender's average hard money loan amount, ensuring that you're bringing them bargains that they can actually accept.  When you've discovered a home that meets your criteria, you'll need to do the following: Perform a property appraisal Performing a property appraisal can include some of the following steps: Calculate the cost of renovations. Calculate the item's worth after it has been repaired (ARV). Before financing charges, calculate your estimated profit margin from the sale of the renovated property. Prepare a deal information packet with all of the information mentioned above for possible lenders (if necessary). Calculate how much a hard money loan will cost. After financing charges, calculate your estimated profit margin from the sale. When you're getting ready to apply for a hard money loan, you don’t want to mess up the property appraisal. “Lenders are not likely to lend you the money if you're willing to pay the asking price for an inflated property since the asset they'll be receiving as collateral isn't likely to be worth as much as you need it to be,” says Isaac Zisckind, Senior Partner and Real Estate Lawyer, Diamond & Diamond Lawyers.  If you're good at spotting undervalued homes, on the other hand, you might be able to acquire better interest rates from hard money lenders because your prospects of generating a profit are higher. Last but not least, if you're going to a foreclosure auction to look for homes, you'll need to be prepared to move quickly and have a strong idea of how much money you can really acquire when bidding. So, before applying for a hard money fix and flip loan, always prepare ahead and plan attentively. Create a budget Your hard money fix and flip loan will most likely be the focus of your financing strategy, and it will have a significant impact on whether the project succeeds or fails. If you want to consistently generate a profit, you must thoroughly understand all potential costs. It'll also help you understand how much time you have to renovate and resell your home. After you've closed your first successful hard-money sale, the entire preparation process will become second nature to you. It is strongly recommended to create a budget and deal evaluation spreadsheet in the months leading up to your first deal to keep track of your estimated expenditures and margins. Everything becomes much clearer when you can view all of the facts on one page. How to apply for a hard money loan Now that you've completed the preparation phase, it's time to move on to the application procedure. Thankfully, applying for a hard money loan is a lot easier than locating profitable homes and determining whether or not they're worth remodeling. The application process typically includes the following steps: Place a contract on a property. Consult a loan officer. Fill out the application for a loan. Wait for the application to be reviewed by the underwriter and loan officer. Obtain a property appraisal from a third party (if necessary). Please provide any supporting paperwork for the property or your company (if necessary). In any case, you should be prepared to show the lender proof of income. While you may not need to explain your valuation or the predicted costs and profits all of the time, your lender will almost certainly be doing their own calculations for every aspect of the transaction — except for how much profit you'll make after it's all said and done, of course. You might even ask to compare notes if you're working with a hard money lender with whom you have a good working connection. How to get pre-qualified for a hard money loan It's critical to have a hard money fix and flip loan lender who moves at your pace, especially if you plan on performing a number of deals at once. Getting pre-qualified by a lender can help you cut down on wasted time and increase your transaction flow significantly. However, the requirements for becoming pre-qualified vary greatly from lender to lender, and getting your foot in the door with the major national lenders can be difficult. Pros and cons of hard money loans There are several compelling reasons to seek a hard money loan rather than a traditional bank loan, but also several reasons not to.  Pros The following are the pros that hard money loans provide to real estate investors: Flexible terms — Because private financiers provide hard money loans, investors may have more flexibility in negotiating loan terms. During the underwriting process, users may be able to modify the repayment plan to their needs and have certain fees, like the origination fee, decreased or removed. Convenience — Applying for a mortgage takes time, especially with the new mortgage lending standards imposed as the Dodd-Frank Act. Clearing a loan might take months, putting investors at the chance of losing out on a specific investment estate. A hard money loan can provide funds in as little as a few weeks. This is critical if you're sponsoring a big development venture and can't afford to miss the deadline. Collateral — With a hard money loan, the asset itself is typically used as collateral. Lenders may, however, give investors some freedom in this area. Some lenders, for example, may allow you to use personal property to protect the loan, like a retirement account or a unit you own. Cons Hard money loans aren't always the best option for funding. There are two major disadvantages to consider: Cost — Although hard money loans are easy, they come at a cost to investors. The rate of interest might be up to ten percentage points more than a traditional loan. Investors will likely pay more in service charges, loan service fees, and closing charges. Shorter repayment period — The goal of a hard money loan is for an investor to be able to get a property ready to sell as soon as feasible. As a result, compared to regular mortgage loans, these loans have substantially shorter repayment schedules. It's critical to have a clear understanding of when the property will become lucrative when picking a hard money lender to assure that you'll be able to repay the loan on time. The bottom line Aside from going via institutional lenders, hard money is a faster way to secure a real estate loan. Private people or investors that have hired hard money loan organizations to manage their investment portfolios provide funds for hard money loans. A hard money loan is an excellent option when banks have turned down a loan application or when speed is of the essence. By thoroughly knowing your lender's terms and costs, you can protect yourself from all of the problems we've discussed. Prepare a solid exit strategy and ensure that you can make timely payments in order to establish a long-term connection with a lender. Grant McDonald has more than three decades of experience in the real estate industry and more than a decade in the real estate finance space. He is currently Vice President - Corporate Development at 14th Street Capital - America’s premier hard money lenders for real estate investors.