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Financing Home Improvements with the FHA PowerSaver Program

A Long-Term Remodeling Loan in a Slumping Housing Market with Rising Energy Bills

© 2013 by all rights reserved; content may not be copied, rewritten, or republished without author’s written permission. Author’s Google profile

A well-maintained back yard; photo courtesy George Goodman

It’s no secret that the US government is good at two things; collecting taxes (now the more politically correct “raising revenue”), and spending money.

Over the past several years it has also taken an interest in steering homeowners in a greener and more energy efficient direction when it comes to residential energy consumption.

Now the FHA (Federal Housing Administration) is offering the PowerSaver Program, a mortgage insurance product.

Homeowners desiring to make energy-saving improvements can secure up to a 20-year $25,000 loan to make improvements as outlined and approved by the FHA and the DOE (Department of Energy).

Who Qualifies for Mortgage Insurance?

The loan must be secured by an existing first loan. The homeowner’s credit score must be a minimum of 660 points in order to be considered a reasonable credit risk. The debt to income ratio must be 45% or less.

It’s important to know that the loans themselves are not provided by the government but are simply guaranteed by the FHA, which assumes 90% of any defaulting loan while the commercial lender backs the remaining 10%.

The interest rates typically range between 5% and 8%. As of April 21, 2011 there were a total of 18 approved commercial lenders.

What Kind of Home Improvements are Covered?

Since the intent of the PowerSaver program is to implement energy-conserving measures, the FDA recommends an energy audit to determine how best to invest the money. Specifically, HUD (Housing and Urban Development) recommends, “the installation of insulation, duct sealing, replacement doors and windows, HVAC systems, water heaters, solar panels, and geothermal systems.”

Items like insulation and replacement doors are relatively inexpensive investments, with the prices rising from there with energy-efficient replacement windows and geothermal systems getting into some serious money.

The upside is that after installation, utility bills will be easier to control and some of these investments are eligible for federal energy tax credits.

Since this is a new program, with job layoffs continuing to rise nationally, and the lending community in such a cautious mode, the number of people that will take advantage of this program is difficult to estimate.

However, the government believes that initially 30,000 homes will be involved and 3,000 or more jobs will be created as a consequence.

As with all capital-intensive renovation projects, it’s critical to reevaluate the home’s total replacement cost and update homeowners insurance policy after remodeling.


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