Until now, thousands of California homeowners with an existing HERO Program, Ygrene, or CaliforniaFIRST energy efficient PACE loan have been unable to refinance their FHA or VA mortgage to reduce their interest rate or take cash out.
A majority of the roadblocks that prevented people from refinancing or assuming a HERO Program loan when buying have been removed.
HERO = Home Energy Renovation Opportunity
PACE = Property Assessed Clean Energy
FHA flip flopped and just announced December 7th in Mortgagee Letter 2017-18 that homes encumbered with a PACE loan like HERO, Ygrene, or CaliforniaFIRST, will no longer be eligible for FHA financing (Conventional financing won’t allow it either).
We can still refinance VA loans without requiring borrowers pay off a HERO PACE loan.
How is this Possible?
Previously, Government lending agencies such as FHA, VA, USDA and Fannie Mae/Freddie Mac would not allow anyone to refinance an existing loan that had a PACE loan recorded on title, nor would they allow buyers to assume the HERO loan.
The problem was the HERO, Ygrene or CaliforniaFIRST PACE assessment was it’s collected through the payment of property taxes, which then put the PACE loan in first lien position. FHA, VA and Conventional guidelines wouldn’t allow their mortgage to fall into 2nd lien position. Stories of the previous problems with HERO can be read here, here, here and here.
Fortunately, the White House released their Clean Energy Savings For All Initiative that requires the Federal Housing Administration (FHA) and the Department of Veteran Affairs (VA) revise their guidelines and allow homeowners with an existing HERO progrram PACE loan to refinance or be able to purchase a home that has a PACE lien on title.
Of course, the PACE provider must satisfy and comply with several requirements to make this happen, but it’s now possible.
HERO and Ygrene are one of the first PACE providers that will now subordinate into second position behind an FHA or VA loan.
Lenders Not Cooperating with FHA, VA and HERO?
Sadly, many mortgage lenders refuse to participate or not aware that FHA, VA, and Conventional loans will allow HERO and Ygrene PACE loans to remain on title or that Renovate America and HERO will subordinate into second position.
If you’ve tried to purchase a home that has a HERO lien or refinancing your mortgage, you may have already experienced a lender that claims you can’t or attempt to convince you to do a more costly cash-out refinance to pay off the HERO loan or even convince you to tap into your 401K retirement fund to pay off the HERO PACE loan.
Don’t get mad at them for for not cooperating or knowing their guidelines…..just move on and contact me for help.
Homeowners who don’t want to pay a gigantic monthly property tax bill due to their HERO loan payment should also consider how the new Fannie Mae HomeStyle Energy Mortgage (often called the PACE Buster loan) can pay off their costly high interest rate HERO property tax loan and reduce their monthly payments!
FHA & VA Guidelines for HERO PACE Energy Loans
- PACE assessment cannot take first lien position ahead of the FHA mortgage
- PACE loan must be paid through the collection of property taxes as a special assessment
- The PACE assessment be able to transfers from one property owner to the next, even in the event of a foreclosure sale
- Appraisers must analyze and report on the impact of PACE-related improvements to the value of the property
- PACE liens that preserve payment priority for first lien mortgages will be eligible for financing that does not exceed FHA or the VA’s maximum combined loan-to-value (CLTV) ratio
- For a purchase, the sales contract must indicate whether the PACE obligation will remain with the property or be satisfied by the seller at, or prior to closing. When the PACE obligation will remain, all terms and conditions of the PACE obligation must be fully disclosed to the borrower and made part of the sales contract between the seller and the borrower
- Existence of a PACE obligation on a property is readily apparent to mortgagees, appraisers, borrowers and other parties to an FHA insured mortgage transaction. Public records and must show the obligation amount, the expiration date and cause of the expiration of the assessment, and in no case may default accelerate the expiration date
Get the Facts & Know Your Options
Don’t waste your time arguing with some mortgage lender who doesn’t keep up to date with changing guidelines that enable you to refinance or purchase a home that has a HERO lien/loan on it.
Compare all your options. Maybe it would be better to refinance and pay off your HERO loan with the HomeStyle Energy loan or just do a regular rate and term refinance and keep your PACE loan.
Frequently Asked Questions
1. Can I refinance my FHA or VA loan if I have a HERO/PACE loan in first lien position?
Possibly, yes, you still have to qualify for the new loan as usual and meet the stated guidelines above. Due to FHA’s new rule, they will not allow a PACE loan to remain.
2. Can I do an FHA or VA cash-out refinance if I have a HERO Solar Energy program on my home now?
Yes, if you have enough equity and qualify for the mortgage. FHA caps the LTV at 85% and VA allows borrowers to cash out up to 100% LTV.
3. Can I refinance into a Conventional loan and get rid of my FHA PMI if I have a HERO/PACE loan?
Conventional financing (Fannie Mae & Freddie Mac) will only allow a HERO or Ygrene energy loan to remain when it’s in 2nd position, or subordinates to the first loan.
A more common option is to use the HomeStyle Energy loan to pay off the HERO PACE loan because the HomeStyle Energy loan will allow you to pay off that high rate PACE loan and it won’t be considered a cash out refinance and allow you to go up to 95% LTV (if needed). Whether or not you can get rid of PMI will depend on your appraisal value and loan-to-value.
4. Can I use FHA or VA financing to purchase a home where the seller and I agree to assume a HERO solar energy loan?
Yes, if the above stated requirements are met. Due to FHA’s new rule, they will not allow a PACE loan to remain.
5. The contractor who sold me the solar panels and other energy improvements never told me HERO would put a lien on my home and never told me how high the HERO interest rate was. What should I do?
That’s a great question for an attorney…..and I don’t even play one on TV, so I can’t help you with that.
6. I listed my home for sale but my real estate agent and other lenders I’ve spoken to all say it’s impossible for a buyer to assume my loan because of the HERO loan.
If the buyer of your home wants to work with me as their lender, I can get them pre-approved and likely be able to assume your HERO loan. Due to FHA’s new rule, they will not allow a PACE loan to remain.
7. Can I include the cost of buying energy efficient improvements into my mortgage when buying or refinancing my home mortgage?
Yes, that is possible. Contact me to discuss options.