HERO Loans They Might Seem More Promising Than They Are
What is a HERO loan?
In the simplest of terms, a HERO loan is a government-backed mortgage product offered to those homeowners that would like help covering the cost of energy-efficient improvements made to their homes with the ability to later repay these costs through property taxes.
The HERO loan program is part of the Property Assessed Clean Energy program, or PACE. These programs are constructed by governments to help commercial and residential property owners finance sustainable product projects. The availability of different HERO programs in an area can vary greatly around the country.
This is to encourage homeowners to invest in energy-efficient improvements on their property through government-backed loans that require no money paid upfront. PACE programs are approved by state and local governments in over 35 states. HERO loans have only been approved for select residential homeowners in California, Florida, and Missouri.
HERO loans can provide 100% of the financing for the purchase price and installation of qualifying energy-efficient products in a home. The most common projects covered by HERO loans include solar installation, heating, and cooling systems, hot water heaters, improved windows and doors, roofing, landscaping, and more. Water conservation measures are also often funded through HERO loan programs.
Little known and under-realized risks of borrowing through a HERO loan program
HERO loan programs can help a borrower gain capital for long-term energy improvements on a property but there are some little advertised risks that borrowers should be aware of before taking out this type of loan
HERO loan payments are tacked on to property taxes
This loan product is considered a type of lien and takes first priority if a homeowner should default on their property loan. This states that the HERO loan will be paid before any other creditors including the lender holding your first mortgage.
It could be difficult to refinance or sell the property
When a HERO loan becomes a first position loan, it could create difficulties with other lenders that would like the ability to require to be paid first should something happen as a default on the loan. The mortgage backing entities of Fannie Mae and Freddie Mac have set guidelines prohibiting offering mortgages to property owners with this type of tax lien on the property. Some homeowners have found that they have needed to pay the HERO loan in full before proceeding with a home sale or refinance.
The 2017 tax reform bill caps property tax deductions at $10,000 according to the United States government
A higher property tax bill will mean less likelihood of being able to write off any part of this HERO loan payment because it is treated the same as your property tax
Financing fees can be larger
With HERO loans there is often a one-time 6.95% administration fee and a yearly interest rate of 11% or larger
Sometimes payments don’t show up until later in the year
Most HERO loan payments are put with the second tax bill for the year and can result in homeowners being required to pay a large amount of money at an unexpected time in order to make up for the first missed payment.
With an increase of interest for home improvements, especially ones that are energy efficient and help to save money on utility bills, these types of loans can be very intriguing. Before taking out this type of loan it is best to talk it over with an experienced mortgage professional to determine if it really is a beneficial plan for you.
For more information on all mortgage loan options in Mission Viejo and California please contact me anytime.Contact Me Now