If you’re going to be doing a refinance of your house and you have an energy Independence program that’s built into your real estate taxes- here is what you need to know.

Originally, these loans were required to be paid off because most of these programs are built into the property taxes of your mortgage, and Fannie and FHA would not allow them to be considered as eligible debts to be paid off. As a result, your ability to get financing was impacted by loan-to-value ratios and or cash to close and you had to have the financial ability to pay both the mortgages and the energy home improvement loan off.

Both Fannie Mae on conventional financing and FHA financing will both specifically allow you to finance paying off the first mortgage and paying off an energy loan that’s otherwise built into your real estate taxes. The beauty of this program is that it allows you to finance paying off the debt at the high loan-to-value that each program offers.

For example, you can have a first mortgage on your house for say $400,000 and a second at $50,000 in the form of energy and pay each debt off on a new $450,000 new mortgage going all the way up to 95% loan to value on a conventional, up to 97% loan to value on an FHA as a rate and term refinance. Here is where is particularly valuable to you as a consumer, a rate and term refinance are priced much more attractively than a cash-out refinance. So effectively you can use a rate and term refinance to fix up your house and still get rate and term financing which subsequently allows you to secure better mortgage terms.

This is something to think about if you have an energy loan built into your property taxes and you are desiring to refinance your home. One caveat here is it the debt has to get paid off. More than likely it will not be allowed to be subordinated because it’s built into the property taxes in most circumstances which have first-lien prioritization before a Fannie or  FHA mortgage does.

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