Hi everybody, my name is Jeff Mallas and this is my first post to "All About Mortgages." On this blog, you will find answers to every question you can possibly think of about mortgages. You may even find answers to questions you didn't even know you had! You see many times "we don't know what we don't know," and "All About Mortgages" is here to put an end to that.
Let me first introduce myself. As I said previously, my name is Jeff Mallas and I live and work in Las Vegas, Nevada. Over the past 18 years, I've started three mortgage companies and closed over a billion dollars in mortgage loans. I've been a mortgage consultant, processor, sales manager, underwriter, and secondary marketing executive. During my career, I've learned some things that I really think can benefit you.
But rather than start regurgitating myriad nuggets of wisdom and tell you what I think you need to know, I want you to tell me what you want to know. I'd like this blog to develop or grow organically, so I'm opening up the floor to you, my readers, and asking that you post a question on "All About Mortgages." Let me know what you want to know and let's get this blog growing!
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Hi Jeff, thanks for taking the time to do something like this.
ReplyDeleteI am getting ready to buy a foreclosure that is in pretty good shape, but the old oil boiler is dead. I would like to put in geothermal. An energy audit of the house indicates that HVAC for a year will cost ~$6000 year conventionally, or ~$1000 with the Geothermal installed. My realtor suggested asking my mortgage broker about getting a "green" mortgage, where the mortgage company will agree to finance the cost of the HVAC upgrade. The geothermal installation costs $60000, but in addition to paying for itself quickly, I think it clearly significantly increases the value of the house.
In this market, am I likely to be able to persuade a mortgage company to tack on an extra 60K. We're getting the house for 400K, putting down 20%, and taking a 15 year loan.
Thanks for the question fishdan. I think you have a great idea and normally I would say it should be no problem convincing a lender to finance the improvements. But there are a few challenges you are facing.
ReplyDeleteFirst, the cost of the improvements is high on a percentage basis. Most of the time, lenders expect the cost to be an additional 5% or so of the home's value to make it more energy efficient and you are at 15%. Even though you will experience significant savings in utilities by making the improvements, you may not be able to convince an appraiser that they're worth $60,000 pricetag. You'll have to talk to your appraiser about that. If s/he says that the "after improved value" is at least $460,000, then your next step would be to find a lender that will do an escrow withhold.
Since the improvements won't be completed until after you close on the property they will withhold $60,000 to give to the contractor in draws as work is completed. Even in today's market, this shouldn't be too difficult as escrow withholds are used quite often to build pools, for instance, after closing. One caveat is that they may only give you 30 days to get the work completed.
Now if you want to stay at 80% Loan-to-Value (LTV), you will have to pay 20% of $60,000 or $12,000 because the "acquistion cost" or after improved value is now $460,000. If you only have $80,000 to put down, then you will have to pay a slightly higher rate or pay mortgage insurance because your LTV will go up to 82.61%. This would still be a great option because the increased monthly payment would be offset handily by the savings in the utilities.
Thanks for considering making your home more energy efficient, fishdan. When anyone reduces his energy use, it benefits us all.
To learn more about "Energy Efficient Mortgages" click on the following link, http://www.nls.gov/offices/hsg/sfh/eem/eemhog96.cfm