FHA and Fannie Mae offer loans for home energy improvements

What’s the best way to pay for energy improvements to your new manufactured home? The answer may lie in new government-backed mortgage programs.

Both the Federal Housing Administration and mortgage investor Fannie Mae recently partnered to offer brand new options for homeowners seeking energy conservation solutions. The FHA PowerSaver program will allow eligible owners to borrow up to $25,000 at fixed rates between 5% and 7% for as long as 20 years. Homeowners of stick built and manufactured homes can use the money to upgrade to high-efficiency windows and doors, heating and ventilating systems, solar panels, geothermal systems, and insulation and duct sealing, among other retrofits.

Although The U.S. Department of Housing and Urban Development has made it clear that PowerSaver is a pilot program, it estimates that 30,000 of the program’s loans will be closed during the next two years. If successful, PowerSaver may eventually become a major national program for residential energy upgrades, with total loans extending into the millions.

According to the Los Angeles Times, the FHA will insure loans to cover the improvements up to the $25,000 maximum under the following guidelines:

The house must be your principal residence, detached and single-family only. No rentals, no investor homes, no second homes are eligible.

You’ll need to demonstrate that you are a solid credit risk. Minimum FICO credit scores of 660 are required, plus your total household monthly debt-to-income ratio cannot exceed 45%.

Houses with negative equity will not qualify. You’ll need some level of equity in the property; there is no mandatory minimum stake, but the combined primary mortgage debt plus the PowerSaver second lien cannot exceed 100% of the appraised market value of the house. You could, for example, have a 10% equity position in a $200,000 home, and still qualify for up to $20,000 in a PowerSaver.

Lenders are likely to take an extra hard look at all your income and asset documentation because, unlike other FHA-insured mortgages, PowerSaver will cover only 90% of the lender’s loss or insurance claim in the event of a default.