FHA to Offer New Home Energy Improvement Loans

By:: Kara Johnson | November 12, 2010

A new program to help homeowners obtain low-cost loans to make energy efficiency improvements to their homes has been unveiled by the FHA and HUD.

The FHA PowerSaver program will home equity loans of up to $25,000 for energy improvements such as new furnaces, air conditioning or water heaters, door and window replacement, insulation installation, solar panels, geothermal systems and others.

The program is aimed at borrowers who would like to make energy improvements but would have difficulty qualifying for a traditional home-improvement loan. To qualify, borrowers must have at least some equity in their home, and the combination of their mortgage and the energy loan may not exceed 100 percent of the home’s value.

Borrowers must also have a minimum 660 FICO credit score and a maximum debt-to-income ratio of 45 percent.

“HUD and FHA are committed to lowering the cost and expanding the availability of affordable financing for home energy retrofits,” said HUD Secretary Shaun Donovan. “PowerSaver will help more homeowners afford common sense, cost saving improvements to their homes, and will create jobs for contractors, installers and energy auditors across the country.”

Under the program, the FHA will insure 90 percent of energy loans that meet program guidelines and are made by qualified lenders. Lenders will retain 10 percent of the risk to ensure that they retain some “skin in the game” and guard against risky lending.

The two-year pilot program is to be available beginning in early 2011.

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