I just flew in

from the East

Coast…

…and boy

are my arms

tired.

Financing Green Home

Construction

Avi Jacobson

Senior Sustainable Energy

Coordinator

Image: http://greencanopyhomes.com/our-homes/the-triplets-clara/exterior-2-4

Image: http://greencanopyhomes.com/our-homes/the-triplets-clara/exterior-2-4

• The Commission

• Energy Program

• Sustainable Energy Trust–Green Home Improvement

Fund

• Solar Update

• Discussion

• The Commission

–Founded 1983

–Homeownership, Affordable Housing, Non-Profit Facilities, Beginning Farmer Rancher… and…

–SUSTAINABLE ENERGY

• Sustainable Energy Program–Authorized 2009

–Energy Efficiency & Renewable Energy • Conduit Bond Issues

• Loan Participation/Credit Enhancement

• Direct Lending

• Sustainable Energy Trust (SET)– Federal Grants & Commission Funds

• Debt Service Reserves

• Loan Participation

• Secondary Loans

– Project Models• Energy Services Performance Contracts

• Energy Service Agreements

• Loan Participation/Credit Enhancement

• Primary Lender

• Developing new programs to test…

• SET—Green Home Improvement Fund– Resource Efficient Home’s Value

• Lower Operating Costs

• Quality

• Reduced Mortgage Default Rates

• Social/Environmental Benefits

– Obstacles• Banks don’t finance new/different

• No “Green Premium”

• Appraisals may not recognize features/value

• Education/Familiarity of buyers/realtors

• Others?

• SET—Green Home Improvement Fund– Program Goals

• Increase Supply of Green Homes– Raise Awareness

– Consumer expectation

• Bring it down market– Long tail of moderate-average income home

buyers

– Tie in w/our Home Ownership Programs

– Institutional culture of helping low/moderate income populations

Meet our goals, get our money.

Thanks.

Now that I’ve shared all I know about green home

financing…

Let’s spend the rest of the hour watching funny cat

movies.

The Green Home Improvement Fund

You probably want to know how it Works

• Construction Loans–Acquire/Rehab/Resell

–New Construction

• Third-Party Verified Efficiency–Audit in, Audit out

– Improvement relative to• The house prior to rehab; or

• Code, if new construction

Qualifying Project: AssumptionsIncome: $97,000.00

Effective Tax Rate: 75%

Mortgage Rate: 5.50%

Property Tax Rate: 0.012

Down Payment: 10%

Payment as % Income: 30%

Target Montly Payment: $1,818.75

Estimated Month Payment $1,818.75

Target Price: $297,662.84

Max Underwriting Price: $417,000.00

• Rehab Project– Targeting at least 20% Efficiency

Improvement

– Max incentive at 40% Improvement

• New Construction Project– Targeting at least 10% Efficiency

Improvement over current code

– Max Incentive at 20% Improvement

• EPS, HERRS, ASHRAE… be consistent in and out using widely accepted standard

WARNING

Fine Print

Approaching

Final interest rates on loans issued under the GIF program are based on a project’s actual performance meeting energy efficiency and affordability criteria. More efficient homes will get more advantageous interest rates, as will more affordable homes. The final interest rate is the weighted average of the rate that would be charged under affordability scoring and the rate that would be charged under energy efficiency scoring. Affordability criteria are weighted at 70%, efficiency at 30%.

In the affordability category, minimum interest rates will be available to homes that sell for $297,664.62 or less based on the assumptions above. That value is subject to change as income requirements, mortgage rates, etc. change. The minimum rate is tied to the 10 year US treasury bond rate. That rate increases linearly according to the following formula: 0.0000001251 x Sale Price - 0.0100307008. However, if a house sells for $500,000.00 or more then a rate of 10% will apply. The rate structure is meant to encourage developers to profitably sell more affordable homes while not offering windfall profits to those who severely underestimated market demand for the home being built in the assessement presented to the Commission.

Rehabilitated homes that feature a 40% or greater improvement in energy efficiency will receive the lowest rate under the efficiency criteria. Rehabilitation projects that fail to achieve at least a 20% improvement in the home’s energy efficiency will be charged a 10% interest rate. Projects meeting betweena 20% and 40% improvement in energy efficiency will be charged a rate calculated as follows: -0.0640* Efficiency Gain + .0528.

Newly constructed homes that feature a 20% or greater improvement in energy efficiency over current code will receive the lowest rate under the efficiency criteria. New construction projects that fail to achieve at least a 10% improvement in the home’s energy efficiency will be charged a 10% interest rate. Projects meeting betweena 10% and 20% improvement in energy efficiency will be charged a rate calculated as follows: -0.1280* Efficiency Gain + .0528.

Final project rate is calculated by taking the weighted average of the affordabilty rate based on the average sale price of homes in the project and the average efficiency performance of homes in the project. If a project involves both new construction and rehabilitation of houses, then the rate for rehabilitatio and new construction elements will be calculated separately and then averaged together.

Given that the final interest rate on the construction loan may not be known until all of the homes are sold, principal may be paid back first while a final resolution on interested owed is completed afterwards.

Enter Values Under Project Profile and select whether it is a New Contruction or Rehab Project

Assumptions Project Profile

Income: $97,000.00 Avg Sale Price: $400,000.00

Effective Tax Rate: 75% Avg Efficiency Improvement: 15.00%

Mortgage Rate: 5.50% Rehab New Construction

Property Tax Rate: 0.012 Max 40% 20%

Down Payment: 10% Min 20% 10%

Payment as % Income: 30%

Target Montly Payment: $1,818.75

Estimated Month Payment $1,818.75

Target Price: $ 297,662.84

Max Underwriting Price: $ 417,000.00

Lending Rate slope x-intercept

Affordability Factors

10 yr Treasury: 2.72% 0.00 (0.01) 1

FHFA Max Loan: $ 417,000.00 -0.010

Rate: 4.000%

Efficiency Factors slope X-intercept

New Contstruction/Rehab: New New -0.128 0.0528 0.0528

Efficiency Gain: 15.00% Rehab -0.064 0.0528 0.0528

Rate: 3.36%

Weighted Average (70% Affordability, 30% Efficiency)

Rate: 3.81%

Enter Values Under Project Profile and select whether it is a New Contruction or Rehab Project

Assumptions Project Profile

Income: $97,000.00 Avg Sale Price: $320,000.00

Effective Tax Rate: 75% Avg Efficiency Improvement: 22.00%

Mortgage Rate: 5.50% RehabNew Construction

Property Tax Rate: 0.012 Max 40% 20%

Down Payment: 10% Min 20% 10%

Payment as % Income: 30%

Target Montly Payment: $1,818.75

Estimated Month Payment $1,818.75

Target Price: $ 297,662.84

Max Underwriting Price: $ 417,000.00

Lending Rate slope x-intercept

Affordability Factors

10 yr Treasury: 2.72% 0.00 (0.01) 1

FHFA Max Loan: $ 417,000.00 -0.010

Rate: 2.999%

Efficiency Factors slope X-intercept

New Contstruction/Rehab: Rehab New -0.128 0.0528 0.0528

Efficiency Gain: 22.00%Rehab -0.064 0.0528 0.0528

Rate: 3.87%

Weighted Average (70% Affordability, 30% Efficiency)

Rate: 3.26%

• Currently $1 Million Fund for primary lending

– May increase soon

– Currently have $100,000.00 Available

• Additional $2 Million to provide up to 20% of project capital

• We move fast, but need at least a few weeks to review

• Contact us early and often

• Rates Very Low–Still experimenting

–Trying to alleviate opportunity cost of selling lower cost homes

–Understand land and construction costs somewhat fixed, limits pricing options

• Looking to operate state wide

• Does this help you?

Solar Update

• Solar City Builder Program– Prepay Lease w/Construction Funds

– Fixed ~$0.10/kwhr for 20 yrs

– $2/watt pre-payment

• How Can Commission Help?– Dedicated Fund to lend the prepayment?

• Too much hassle?

• Worth it?

– Incentive as part of existing programs?

– Other Ideas?

• Disclaimer

–Not endorsing Solar City

–Builder Program Model has promise

•WSHFC will help model scale

•Will try to work with anyone

Questions?

Avi Jacobson

Senior Sustainable Energy Coordinator

avi.jacobson@wshfc.org

206-254-5359

@Avi_Jacobson

www.wshfc.org/energy