Appraising Green Homes

Mark Moore graduated from Texas A&M University with a major in Agri-Business and minor in Economics. He has 25 years of banking and lending experience in all aspects, including home mortgages. He has done lending in Texas, New Mexico and Colorado and is currently Senior Vice President of Collegiate Peaks Bank in Salida, Colorado. Collegiate Peaks Bank is the largest home construction lender in the Upper Arkansas River Valley, where they try to make it easy for the borrower from construction to permanent. They place permanent mortgage financing with Affliliated Financial Group and Skyline Financial Group. They are the only bank in that region that will do financing on alternative housing. They currently have four offices, two in Chaffee County and two in the Denver area.

Questions and Answers

Q: I'm the director of the San Francisco based Green Sphere Finance and specialize in sourcing mortgage loans and project financing for green real estate. I'm currently working with a number of appraisers in an attempt to develop a standardized matrix structure to help quantify the added value of green building aspects. An inherent problem with financing these projects as you well know, is being able to convince the lender/investor of the increased valuation as a result of the green benefits- in an effort to offset costs and increase lending margins. You obviously have significant experience in this realm...how have you been able to get such projects to appraise at the desired levels?

A (John Willis): The first thing is to define 'green'.  There are a number of building systems that are considered by many to be 'green' that have little difficulty with financing.  Examples: ICF, Solar/radiant floor heating, passive solar, recycled materials, etc.  The problem is when the borrower wants to use an 'alternative' method of 'framing' or creating the structural elements of the house.  Building systems such as straw bail, rammed earth, etc. are very difficult to finance conventionally, to my knowledge. 

If there's a structure that is semi conventional such as a straw bale house with traditional trussed roof-otherwise conventional, there are probably portfolio lenders who will finance them, especially if they are common to the area. 

Honestly, if someone is going to build a bona fide earthship, there's only one way I know to secure conventional financing:  Do a lot loan, then get an equity line of credit against another property for construction.  That may even be problematic because of the term of the lot loan; not always. 

The only program I know of that is specifically designed to finance green residential properties is the EEM (Energy Efficient Mortgage).  While it's a well intentioned program, I don't think it's of much value.  All it does is calculate debt ratios a bit differently.  The ratios take into consideration the cost savings to the borrower.  But ratio problems are just as easily solved by stated income programs which are available in every term conceivable.  It's solving a problem that's already been solved. 

If you know of any 'green mortgages' I would love to hear about them.  I have a number of ideas about how to create such a product, but have yet to identify one.

Q: We have just begun the process of trying to finance the building of a new home. We have talked to several lenders who are very willing to lend us money based on our current finances/credit scores and equity in the land that we own. But...the land that we own has an ADU that is completely "off-grid" meaning, solar/inverter/batteries for electricity, above ground collection system for water and composting toilets. We are willing to put in new septic and well for the new house but bringing electricity to where we live is impossible. We live in a green neighborhood and have agreed to not bring electricity up the road (it's about 1 1/2 miles from here). I've read through your q&a and found some info there, but I was wondering if you know of any national lenders that would finance a completely conventionally built house except for solar energy.

A: (Gary Reed) Yes, this is a very doable project to finance based on the information you provided in your question. There are some lenders who are willing to finance solar properties but back away at the last minute when they review the appraisal and are not able to find comparable solar properties in a very close proximity to the subject property. Fortunately there are a small group of lenders who will give significant latitude when it comes to accepting distance between comparable properties. At Mountain Classic Mortgages over 98% of our business is financing alternative or earth friendly homes and we have the ability to do then in all 50 states. We have assembled a team of lenders who understand that this market can not be treated like generic conventional properties. I would love to talk with you about your project, get more details and discuss how we may help with your finance issues.

Q: I have been wanting to build a cordwood home for 8 years. I live in Sewanee, TN. I am having issues with the bank appraisal, they don't know how to determine it's value. I thought they could use log homes to compare it for value. I keep running into dead ends. Do you have any advise?

A: (Gary Reed) In the past year it has become almost impossible to finance any type home other than a conventional stick built and the trend continued through last week when Farmer Mac cut funding on their rural home program.  There remain a couple of lenders who,  if you can meet their guidelines and have comps of like properties on your appraisal, are willing to consider your loan.  This must be A+ credit, solid income and assets, primary residence, rural property of over 5 acres with the intent of agriculture production, usually not over 70% LTV based on the appraisal, and debt to income ratios of 28/36% with no exceptions. Lenders are under the misconception that an "earth friendly" home will not resell should you default.  FNMA will not purchase these loans therefore they have no place to go with them and this is the crux of the problem.

Q: We own an Earthship on 40 acres on the front range of the Rockies in Monument, Colorado. We built this home. We are moving out of the country and are preparing to sell. I am looking for banks and mortgage brokers that would loan on such a home to help with the financing end of a prospective buyer. Also, I would like to know if the appraisal on this type of house should be presented differently.

A: (Gary Reed) There were never many sources for financing earth ships. There are only a few programs remaining. With the amount of acreage this property may well fit under the rural programs. The maximum loan is now limited to $415,000. The buyer needs to be A paper. The appraisal will be key to obtaining funding. It must include one and preferably two similar constructed properties that have sold in a reasonable time and distance to your property as well as neighborhood sales and excellent narrative to support his/her value, etc. The appraiser must also be State Certified not just licensed. The sales comps are always the issue but rural lenders are more reasonable on time and distance than FNMA appraisal guidelines, thus we have been successful at closing several rural "earth friendly" loans recently.

Q: In 2013, my husband and I had a 'green revolution' prefab (total solar for electric, geothermal heating and cooling) built by Huf Haus in Hartenfels Germany on 70 acres in rural southwestern PA. The 2100 sq ft house was purchased on a payment schedule in euros for $1.7 M. We had been falsely reassured by our financial analyst that we would be able to acquire either a building loan or conventional financing after construction. Our final payment was made using a conventional line of credit. Since occupancy, we have made several attempts to get the required appraisal to obtain a mortgage for some equity but on 3 occasions we have received a "not appraisable" determination from local appraisers. Our financial adviser has advised us to abandon any future attempts. Is this problem state-specific? Is there any hope for a green appraisal in the state of Pennsylvania? (2) Would it help to try an get any type of 3rd party certification? (3) What do you advise?

A: I am located in Colorado and we have seen some problems here with getting appraisals done on unconventional homes, just because there are no homes for the appraisers to use to compare with. That’s the reason you are getting the response from the appraisers that it is non appraisable. All I can say is to keep trying.

Q: We own a 2.5 acre property in Morrison, CO. we are building a 10,000 sq. ft off the grid home – although hooked to natural gas and community water. Electric is available to the site but we are not wanting to hook up or pay those costs. Our issue is financing. I can’t seem to find anyone who will discuss this type of home. It’s not a cabin or Yurt. It will be a luxury custom home. Any leads you can give me on possible lenders? We have 720 or above credit score and 20% down payment ready along with liquid and non-liquid reserves in place. Some indication from local lenders is that this is a disqualifier because it would be hard to get comps as homes in that neighborhood are also hooked up to the local electric company service. 

A: (Shane Milne) If the home is already built, then as long as the type of utilities are common for the area (marked that way on the appraisal) then it should be possible with regular Fannie Mae financing (assuming they are financing no more than $561,200). The borrower is correct, if there aren’t comps that are also “off the grid” then I don’t know of a lender who would do it even if it was at a loan amount we’d have a loan program for.  Comps are key, if there aren’t any, then he’ll probably need to look into private financing options… which will require more along the lines of 35-40% down.  Possibly 50% due to the larger loan amount/more exposure by the lender.


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