'Eco-friendly' loans gaining momentum
Rising energy prices coupled with the lending industry's efforts to keep making more loans are focusing new attention on "green" mortgages.
Q. A bank in my area is advertising "green" mortgages, which it claims can increase a buyer's borrowing power while also help the environment. How do these loan-programs work?
A. Various "green" home-loan programs have been offered for years, but banks have stepped up their marketing efforts for the mortgages recently as energy prices kept rising and concern about global-warming grows.
Green mortgage programs -- sometimes called "environmentally friendly" or "eco-friendly" loans -- vary from one lender to the next. Most of the programs offer home buyers larger loans or discounts if they purchase a new, energy-efficient house or make energy-saving improvements to an older property that they have agreed to buy.
Consumers who choose green loans often can borrow more money than they could with a conventional mortgage because the bank will consider their future savings on utility bills as extra "income" that will be available to make their home-loan payments.
Let's say that you agreed to purchase an energy-efficient house that has dual-pane windows, heavy-duty insulation or a heating or cooling system that meets the federal government's strict Energy Star requirements. Even if those improvements would lower your overall utility bills by only a modest $50 a month, the projected savings would allow you to borrow about $10,000 extra by choosing a 30-year green mortgage instead of a traditional loan, according to a spokesman for the nonprofit Energy Programs Consortium in Washington, D.C.
Most banks that make green loans would give you similar breaks if you instead decided to purchase an older house and make such energy-saving improvements yourself.
Several lenders are currently offering bonuses to lure green borrowers, too. Those lenders include nationwide giants Citigroup Inc., J.P. Morgan Chase and Bank of America, all of which are offering up to $1,000 off their closing costs to buyers who "go green." Many buyers, as well as existing homeowners who make certain types of energy-saving improvements, also qualify for special state and federal tax credits as well as rebates or reductions from their appliance manufacturers and utility companies.
Applying for a green mortgage often entails completing some extra paperwork, and sometimes also requires a special "energy audit" performed by an inspector who is pre-approved by the lender. Savvy borrowers ask their bank to pay for the cost of the inspection, which can save them a few hundred dollars more if the lender agrees to foot the bill.
Q. Is it legal to own a home without having an insurance policy?
A. Technically, yes. Every state requires automobile drivers to purchase car insurance, but none requires real estate owners to carry homeowners insurance.
Most lenders, however, require their borrowers to have an up-to-date hazard-insurance policy. If you have a mortgage but allow your insurance coverage to lapse, you'd likely be in violation of the terms of your home-loan contract, and the bank would have the right to foreclose.
Q. What does the term "PITI" stand for?
A. It's lending jargon for "principal, interest, taxes and insurance." Those are the four main components of a borrower's monthly payments.
Q. I am getting married in December, and we plan on buying a home next spring. My fiance has a bad credit history, but I have a perfect one. If I take his last name, will it lower my good credit score?
A. No, taking your fiance's last name shouldn't hurt your credit standing. The accounts you've had in the past will remain on your individual credit report, regardless of your pending name change, and your fiance's bad credit history won't be "merged" into yours.
There are really only two primary ways that your upcoming marriage could hurt your personal credit score. The first would be if you added your own name as a joint holder to one or more of the troubled accounts that your husband has opened in the past. The other would be if the two of you opened new joint accounts in the future and then fell behind on the payments together.
The good news is that any joint accounts that the two of you open after the marriage should gradually improve both of your credit scores -- providing, of course, that all payments are made on a timely basis.
© 2007, Cowles Syndicate Inc.