Real estate investors who finance rental property for the long haul use conventional financing underwritten to Fannie or Freddie guidelines. These programs offer the best rates with the lowest cost compared to any other loan program designed for rental properties. Yet very few investors know about aenergy efficient financing for rental property program by Fannie Mae that allows investors and any buyer for that matter to not only finance the purchase of the property

 but to finance the purchase of energy efficient appliances and improvements. Doing so keeps utilities down which makes it attractive for those who rent and pay their own utilities and especially attractive for landlords who pay for utilities apart from the rent.

The calculation for the loan amount is determined by dividing the loan amount which includes the cost of the improvements by the lower of the appraised value or sales price. The appraisal must take into consideration the improvements have been completed. The result is the allowable amount allotted for the improvements and limited to 10% of the “as completed” value. Investors also offered a credit to be used to help lower the interest rate on the note.

What qualifies as an energy efficient improvement?

  • New attic or wall insulation
  • New roof and/or shingles
  • Fresh caulking
  • Thermal windows and doors
  • Hot water heaters
  • Heat pumps
  • Furnaces

In order to take advantage of the program borrowers must first order an energy audit from a local auditing firm or from the utility directly. The audit must confirm that the improvements to be made will in fact result in utility payments that will reduce the cost of the mortgage. Fannie knows that lower utility payments make for a mortgage payment that is more affordable.

There are other details to work out and the first go-round might be a bit bumpy but investors who work with lenders familiar with this program benefit both in the short as well as long term.