June 6, 2014
When you’re purchasing a home with an FHA mortgage loan, it may be necessary to add improvement or upgrade costs to the loan amount, depending on the circumstances. The FHA has specific rules that govern this practice–for example, no costs incurred before the appraisal can be added to the loan.
HUD 4155.1 has the rules that cover these extra costs. For example:
“The repair and improvement amount that may be added to the sales price before calculating the maximum mortgage amount is the lowest of the
• amount that the value of the property exceeds the sales price
• appraiser’s estimate of repairs and improvements, or
• amount of the contractor’s bid, if available.”
FHA loan rules in the same section also state that, “The mortgage amount may be increased if the cost of energy-related weatherization items paid by the borrower is added to the property. Examples of energy-related weatherization items include
• thermostats
• insulation
• storm windows and doors, and
• weather stripping and caulking.”
But what about solar systems? HUD 4155.1 Chapter Two Section A has the answers. “The cost of solar energy systems may be added directly to the mortgage amount before adding the upfront mortgage insurance premium (UFMIP), and after applying the loan-to-value (LTV) factor limits.”
The amount FHA loan rules say can be added to the loan is limited to, “the lesser of the solar energy system’s
• replacement cost, or
• effect on the property’s market value.
The statutory mortgage limit for the area also may be exceeded by 20% to accommodate the cost of the system. Note: Active and passive solar systems, as well as wind-driven systems are acceptable.”
If you’re buying a home with an FHA loan and want to consider adding a solar system as described above, speak to your loan officer about your options.
Do you have questions about FHA home loans? Ask us in the comments section. You can get information about applying or getting pre-approved for an FHA loan at FHA.com, a private company and not a government website.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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