Freddie Mac rolling out new green home-improvement financing

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Borrowers will get more leeway to finance energy- and water-efficient improvements under a new program coming from Freddie Mac.

Energy and/or water efficiency improvements can be financed after the mortgage's closing date for up to 15% of the "as completed" value of the mortgaged property, according to an update to Freddie's selling guide.

This gives borrowers more flexibility to finance energy- and water-efficient projects because other types of home improvements that will be incomplete at closing can only be financed up to 10% of the "as completed" property value.

The improvements can only be financed with the proceeds from a purchase loan, or a rate-and-term refinance. An escrow account must be established at closing, and a completion report verifying the improvements have been done must be delivered later.

If the improvements total more than $6,500, Freddie also requires an energy report verifying their cost effectiveness. In addition, Freddie requires additional documentation when loans are manually underwritten and have a higher housing expense-to-income or debt-to-income ratio.

The loans must be identified as GreenChoice mortgages and have special delivery requirements. Freddie will apply a $500 credit for credit fees to help offset costs to loans delivered with the GreenChoice identifier.

The new mortgages are part of Freddie's commitment to facilitate improved financing of energy-efficient homes in line with one component of the government-sponsored enterprises' "duty to serve" legislative mandate.

"These changes will assist more low- and moderate-income borrowers in becoming homeowners and/or maintaining homeownership by allowing them to spend less on energy and/or water expenses each month and more toward their monthly housing expense," according to the update to Freddie's guide.

Consumer spending on home improvement is expected to increase through at least the third quarter of next year, according to projections by Harvard University's Joint Center for Housing Studies.

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