June 11, 2019
Did you know that you can ask for an add-on to your FHA home loan or refinance loan to get funds for solar or wind-powered energy efficient upgrades to the home?
Whether you want to add such features to your home at purchase time or refinance time is up to you but it is possible to apply for extra funds to install wind or solar power features.
Some reading at this stage might assume we are talking about the FHA Energy-Efficient Mortgage add-on, but this is actually a different program. Under a section in the FHA loan rulebook, HUD 4000.1, labeled “Solar And Wind Technologies” we find the following information:
“The solar and wind technologies policy allows the Mortgagee to increase the Base Loan Amount to cover the cost and installation of new solar or wind energy system improvements made, or to be made, to the Property at the time of a purchase or refinance. “
This is good for one-to-four unit owner-occupied properties or manufactured housing. Condo units are not eligible for these upgrades.
There are some caveats. The funds made available for solar or wind technologies are for purchase of such technology, not rental. HUD 4000.1 instructs the lender that wind and solar upgrades cannot increase the FHA Base Loan Amount more than 20% of the Nationwide Mortgage Limit for the geographical area the home is in.
The upgrades must never result in cash back to the borrower at closing time. HUD 4000.1 states, “The Borrower may not receive cash back from the mortgage transaction. If an excess exists, the Mortgagee must apply these funds to the principal Mortgage balance. “
Escrow is required for these transactions in many cases and HUD 4000.1 states that the borrower is not allowed to pay herself for labor from escrow. “The Mortgagee must establish an escrow account in accordance with the Repair Completion Escrow Requirements for the remaining cost of the energy improvements if the installation of solar or wind energy systems is not complete by the time of closing.”
There is also a time limit for completion; FHA loan rules say the installation of a solar or wind system paid for with these loan funds must be complete within 120 days of the payment.
If the energy package is part of a 203(k) Rehabilitation Mortgage, FHA loan rules require any escrow funds “of the energy package” to be included in the rehabilitation escrow account.
Furthermore, “Any funds remaining in the escrow account at the end of the improvement period must be applied to pay down the mortgage principal. “
Ask your participating FHA lender about additional funds for wind or solar improvements to the home.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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