Many of you may already be aware of the green-building financing incentives that are approved by the Federal Housing Finance Agency and are offered by Fannie Mae and Freddie Mac. However, you may not be aware of the changes to these programs in 2019.
The major change for 2019 will be regarding the percent reduction in energy and water use, properties must achieve if they are pursuing lending for above-code improvements. The 2018 reduction requirement was 25% which was a large increase from the 2017 requirement of 15%. This requirement is increasing yet again in 2019 to a bold, 30% reduction, with at least half of that required to come from energy savings.
For those of you who need a light refresher or are not familiar with this financing option, we’ve outlined the basics on what you need to know about Green Multifamily Loans.
Green multifamily loans provide monetary incentives and discounts on interest rates for developers (borrowers) to build high performing buildings that use significantly less energy than a code built structure would. The FHA began green lending by offering Mortgage Insurance Premium (MIP) reductions in 2009 and Freddie and Fannie followed suit in 2012 with their own green loans.
Depending on what route you take and who your lender is, there will be substantial reductions in cost from a standard loan. Typically, these reductions come in the form of basis point reductions (one hundredth of one percent), on items such as closing costs and the direct loan. The FHA offers MIP (Mortgage Insurance Premium) reductions for these types of loans as well. We won’t deny there is more work up front, but a significant amount of money can be saved over the life of a 30 year multi-million dollar loan.
The most obvious benefit of a Green Multifamily Loan is the financial savings that can potentially accumulate to millions of dollars over the course of the loan. The impact of a Green Multifamily Loan is also far reaching and long-lasting, with other benefits extending beyond the owner/developer. A few examples of such benefits include decreased utility bills for tenants made possible through meeting efficiency requirements, increased marketability as an above code performing property, and increased adaptability and long term durability of the building. These properties also reduce the impact the new development will have on the local power grid by meeting the standards for a green certification.
Good news! Anyone who is applying for a residential multifamily loan is eligible for a Green Multifamily Loan!
Not all green multifamily financing is created equal. Different lenders offer a variety of financial incentives based on Green Building Certifications and smart property improvements. Here is a breakdown of a few Fannie Mae and Freddie Mac Green Financing options.
Under Fannie Mae, there are two avenues you can take when considering green financing — Green Rewards or Green Building Certification Pricing. Both of these pathways fall under the Fannie Mae Green MBS Financing.
Freddie Mac offers similar options through their Green Up®, Green Up Plus®, and Green Certified programs.
We are happy to see the progression of this program and its requirements, but also recognize the challenges that developers will face to economically meet these increasingly stringent requirements, all the while navigating increasing building costs. We are committed to providing our Clients project-specific solutions and facilitating the goals for the property.
Southern Energy Management has experience working on a variety of projects that are pursuing a green building loan. Regardless of the type of loan you may be applying for, we can offer consulting services surrounding:
If you have questions regarding how to get started, or need a hand deciding which green building program is most appropriate for your project, we are here to help map a route to meet all of your financing requirements.
We’re happy to help find the program that’s right for you!
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