What is a GreenCHOICE® Loan?
GreenCHOICE® loans for both purchase and refinance are available to borrowers who wish to improve the energy and/or water efficiency of an existing property and decrease its related utility costs. GreenCHOICE® loans may also be used to create home resiliency for environmental disasters such as floods, storms, and earthquakes, or to repair damage from these types of disasters. On refinances, GreenCHOICE® loans may be used to pay off existing debt that was used to finance the purchase, installation, repair, or upgrade of eligible energy-related improvements.
All energy-related improvements must be permanently affixed to the property except for appliances used in a kitchen, laundry room, or utility room and/or health and safety improvements.
An energy report may be required.
What properties are eligible for a GreenCHOICE® Loan?
Eligible properties include:
- 1-4 units, owner-occupied
- 1 unit second homes
- Historical Properties (require approval for repairs from governing historical society)
- Manufactured homes (non-structural improvements only)
- Modular homes
- Planned Unit Developments (“PUD”)
- Townhome
- Unfinished new construction
- Warrantable condos (Freddie Mac®-approved and non-structural improvements only)
What improvements are allowed with a GreenCHOICE® Loan?
Eligible Improvements
Types of eligible energy-efficiency improvements include:
- Energy and/or water efficiency improvements, including:
- Renewable energy sources (e.g., solar panels, hydropower systems, wind turbines, and geothermal systems)
- ENERGY STAR Energy Efficient Products
- Electrification improvements (e.g., replacing equipment or appliances that run on natural gas or other combustible fuel with efficient, all electric technologies)
- Health and safety improvements (e.g., building-code compliance if cited by the applicable jurisdiction)
- Resiliency and preventative improvements to either repair natural disaster damage or improve a home’s ability to withstand future natural disasters
- Basic improvements, such as:
- Adding ceiling, wall or floor insulation
- Air conditioning/heating replacement to high efficiency
- Air sealing o Caulking or weather stripping
- Heat pumps and induction cooktops
- High efficiency refrigerators/freezers, water heaters and light bulbs
- Hurricane fabric or shutters
- Low-flow water fixtures
- Programmable thermostats
- Solar water heaters
- Ventilation; radon mitigation; and asbestos, mold or lead abatement
- Windows and doors
All energy-related improvements must be permanently affixed to the real property, except for appliances used in a kitchen, laundry room, or utility room and/or health and safety improvements.
Improvements may not impact the structural integrity of the property for mortgages secured by manufactured homes, including manufactured homes that are CHOICEHomes®.
What are the GreenCHOICE® Loan Appraisal Requirements?
As-Is Appraisal: An “as-is” appraisal is required when there is no renovation component to the loan such as when the GreenCHOICE® loan is being used to pay off existing debt that was used to finance the purchase, installation, repair, or upgrade of eligible energy-related improvements.
After-Improved Appraisal: An after-improved appraisal is required for every GreenCHOICE® loan with a renovation component.
What are the GreenCHOICE® Loan Financeable Renovation Costs?
Minimum/Maximum Energy Improvement Costs, Fees, and Reserves Allowed
There is no minimum dollar amount for the improvements.
The maximum dollar amount depends on the type of GreenCHOICE® activity and the transaction, as described below:
Renovation of an existing property to make energy-related improvements
- For purchases or no cash-out refinances, up to 15% of the “as completed” appraised value of the property
Payoff of existing debt that financed that was used to finance the purchase, installation, repair, or upgrade of eligible energy-related improvements
- For no cash-out refinances, up to 15% of the appraised value of the property. Any remaining balance of energy-related debt must be included in the monthly debt-to-income (“DTI”) ratio and, if re-amortized, sufficient documentation must be obtained to evidence the new payment, including a copy of the new promissory note, if applicable. If a GreenCHOICE® Mortgage loan includes both new energy-related improvements and payoff of previously acquired energy-related debt, the total of both cannot exceed 15%
You may use GreenCHOICE® financing in conjunction with CHOICERenovation® or CHOICEReno eXPress® loans to finance energy-related improvements that exceed the amounts mentioned above.
Other Renovation-Related Costs That May Be Financed
- A contingency reserve will be funded to cover unforeseen repairs that are discovered during renovation. The amount of contingency will be 20% of the bid amount. Contingency reserves are required and typically financed in the loan amount (i.e., Financed Contingency). Alternatively, you may bring funds to closing to fund the contingency reserves; however, any assets required to fund the contingency reserves must be documented and verified above the amount required for down payment and reserves (i.e., Borrower-Funded Contingency)
- Appraisal fee
- Hard costs (i.e., labor and materials from the contractor’s bid)
- Architectural fees (only when combined with CHOICERenovation® or CHOICEReno eXPress® loans)
- Engineering fees (only when combined with CHOICERenovation® or CHOICEReno eXPress® loans)
- Draw inspection fees
- Title update fees
- Permit costs
- Mortgage Payment Reserves not to exceed six (6) months’ principal, interest, property taxes, and homeowner’s insurance payments, depending on the length of time the property will be uninhabitable during renovation (only when combined with CHOICERenovation® or CHOICEReno eXPress® loans)
- Draw Management Fees
Other Highlights of the GreenCHOICE® Loan
- First-time homebuyers may put down as little as 3% of the purchase price plus total renovation costs. Other buyers may put down as little as 5% of the purchase price plus total renovation costs
- Homeownership education is required if loan-to-value (“LTV”) or combined loan-to-value (CLTV) ratio exceeds 95% for a purchase transaction and all borrowers are first-time homebuyers
- Homeowners who are refinancing a loan owned by Freddie Mac® may finance up to 97% LTV. If the existing loan is not owned by Freddie Mac®, the maximum LTV allowed is 95%
- Mortgage insurance is required when LTV exceeds 80%
- Your contractor’s credentials will be vetted. Any contractor hired will have to provide proof of licensing (if required), a Certificate of Liability Insurance, Worker’s Compensation (if required), any specialty certifications required (e.g., lead-based paint, mold, radon, asbestos), and a signed IRS W-9 Form
- Your contractor’s bid has to meet certain requirements such as being on contractor letterhead, naming you as the client, identifying the property where the work will take place, a full description and the location of all work being performed, a labor and materials breakdown per line item, permits and their associated costs, accurate tally of all sub-totals and the grand total, start and completion dates, and number of draws needed. If the property will be uninhabitable during renovation, the contractor should indicate so and let us know how long the property will be uninhabitable
- You may be able to perform some of the work yourself or act as the General Contractor if you are properly licensed, insured, and qualified to complete the renovations. However, the projected budget must be at full retail value for both labor and materials. To find out whether or not you would be allowed to perform work, contact me
- A Consultant is not required for GreenCHOICE® loans unless combined with CHOICERenovation® or CHOICEReno eXPress® and a Consultant is required
- Gifts are allowed on purchases
- GreenCHOICE® loans may be combined with CHOICERenovation®, CHOICEReno eXPress®, Home Possible®, HomeOne®, or HFA Advantage® loans
- All permits should be pulled immediately after loan closing, work should commence within thirty (30) days’ of loan closing, work should not cease for any thirty (30) day period, and must be completed within 180 days of loan closing
Draw Process of the GreenCHOICE® Loan
Allowable Disbursements at Loan Closing: Items that may be disbursed at the closing table include:
- Permit costs (permits must be obtained before work commences)
- Draw Management Fee
Remaining Draws Process: All other financeable improvement costs and fees will be deposited in the renovation escrow account and disbursed as described below:
- Inspections must occur before escrow draws are made to ensure work is being completed in accordance with plans and specifications
- Funds are released to you and General Contractor only when any given renovation work has been completed
- General Contractor to identify number of draws needed, payable upon completion of work
- A ten percent (10%) holdback will apply to all progress, or interim, draws
- Final draw will be paid-in-full and will include all previously withheld ten percent (10%) holdbacks, along with any outstanding contingency requests or change orders
- Appraiser inspects property to identify the percentage of work complete to date for each draw request. Appraiser must complete final inspection
- Checks will be made payable to you and contractor (i.e., dual-party checks)
There are many different types of renovation loans: conventional renovation loans through Fannie Mae® (“FNMA”) and Freddie Mac® (“FHLMC”), FHA renovation loans, USDA renovation loans, a VA renovation loan option, and portfolio renovation loans.
Below is a high-level overview of the renovation loans Diamond Residential Mortgage Corporation offers. For more information, explore FAQs and Blog.
Keys To Success:
- Inquire early! If you attempt to place an offer on a property that is listed for sale without a pre-qualification letter, your offer may be rejected and you may miss a window of opportunity. It is best to secure financing before you are too far into the buying process.
- Make sure your contractor is on board with the contractor qualifications, bid requirements, and draw process required for your loan type.
- If a Consultant is involved, meet together at the property with the contractor, so all parties can finalize the scope of work together.
- Provide requested paperwork quickly to meet contract deadlines. Time lost on the front end of a deal oftentimes cannot be made up on the back end of the deal to hit closing deadlines.
- Be decisive! Decide on the details of your renovation project early and resist the temptation to make changes throughout the loan process. Wavering during the process can cause delays with your closing. Feel confident in pushing forward with the decisions you make at the onset of the transaction. That’s not to say you can’t make changes along the way, but making those changes mid-stream will likely cause delays.
