New Financing Options for Geothermal
Last year, the Federal Housing Administration (FHA) introduced a loan program that enables homeowners to make cost-effective, energy-saving improvements to their homes. The PowerSaver program allows homeowners to borrow up to $25,000 for terms as long as 20 years to make energy improvements of their choice, including insulation, duct sealing, energy efficient doors and windows, energy efficient HVAC systems and water heaters, solar panels, and geothermal systems.
PowerSaver loans are offered through 18 FHA-approved lenders (see sidebar story) and are available to creditworthy homeowners who meet specific debt-to-income ratios. The loans feature interest rates in the single digits, and borrowers using the loans to purchase GHPs can still take advantage of local utility rebates, as well as the 30 percent federal tax credit. Contractors may want to consider this as yet another tool that can be used when talking to customers about the benefits of geothermal systems.
Many professionals in the geothermal industry are excited about this new financing program, including Doug Dougherty, president, Geothermal Exchange Organization (GEO), who noted that the loan program is an effective way to help GHP consumers overcome the first-cost barrier to installations.
“By financing geothermal heat pump system installations, the PowerSaver program can reduce the monthly bill for a GHP system to less than the cost of energy that it saves, putting money into the pockets of home and business owners,” said Dougherty. “Everybody wins with the PowerSaver program, including the industry and consumers. And the economy and the environment benefit as well with installation of more GHPs, creating good jobs and reducing use of fossil fuels for heating and cooling.”
Also embracing the PowerSaver loan program is the Electric and Gas Industries Association (EGIA), Sacramento, Calif., which is a non-profit organization dedicated to advancing energy efficiency and renewable energy solutions. The association recently teamed up with FHA-approved lender, Sun West Mortgage, to provide its contractor-members with an easy way for their customers to access the PowerSaver program.
To take advantage of the PowerSaver program through EGIA, contractors must first pay a $100 screening and training fee (or become a member of EGIA for $250), as well as sign a participation agreement. EGIA also requires documentation, including licenses, proof of liability insurance, W-9 tax forms, and two years of P&L statements that show at least $50,000 net worth or $100,000 in annual sales (program details are located at www.egia.org/swmc). Upon approval, contractors become part of EGIA’s GeoSmart program, and they are listed on the PowerSaver Contractor Directory, which is a resource for homeowners to find qualified professionals to perform energy-efficient upgrades.
As Eric Howarth, vice president of contractor services, EGIA, noted, “We’re excited about this program because homeowners will get a low monthly payment at a great interest rate, and contractors get another tool to help them do more comprehensive energy efficiency or renewable energy projects. In many cases, the low interest rates and longer payment term could result in a payment-neutral position, which really helps sell products like geothermal systems.”
EGIA rolled out its partnership with SunWest Mortgage in mid-May, and within two weeks, the association had already sent out hundreds of enrollment packets and approved over 60 contractors in California. “We have a multistate rollout plan that will cover the U.S. by the middle of this August,” said Howarth.
Duane Knickerbocker, owner, Brower Mechanical, Rocklin, Calif., is a member of EGIA, and he believes that the PowerSaver program will result in many new opportunities for his company. “These loans offer flexibility and a low rate, which really opens up a marketplace that didn’t exist before.”
Brower Mechanical is a home performance contracting firm that offers energy-efficient solutions such as insulation, water conservation, air sealing, and solar PV and thermal energy systems. The company also installs a lot of geothermal heat pumps in new construction, but the lack of financing options has hindered growth in the retrofit market.
“In new construction, homeowners have a 30-year loan to help facilitate the first-time costs of geothermal, but in the retrofit market, there have not been many financing mechanisms to help out,” said Knickerbocker. “We are hoping this will open things up for retrofit geothermal projects. Particularly in homes purchased before 2003, because those homeowners are less likely to be underwater in their mortgages.”
Financing is the key to selling energy efficiency, said Knickerbocker, especially when homeowners are considering high cost equipment, such as geothermal systems. “We can sell energy projects if we can make them make sense. For example, if your electricity bill is $100 a month, and we can save you $120 a month, why wouldn’t you do it? To get that kind of payback, you need a longer term loan, like 20 or 25 years, and a decent rate. Up until now, loan terms were 10 to 15 years, and the rates were high, so it was a difficult sell.”
Knickerbocker has already signed
up several customers with the Power-Saver loan program, and he is hopeful that more homeowners will take advantage of it in order to purchase geothermal systems. “This is a huge step in the right direction that will allow us to offer more products to customers.”
Sidebar: PowerSaver Approved Lenders
FHA has approved the following 18 national, regional, and local lenders to participate in the PowerSaver program, which will offer qualified borrowers living in certain parts of the country low-cost loans to make energy-saving improvements to their homes:
• Admirals Bank
• AFC First Financial Corp.
• Bank of Colorado
• City of Boise, Idaho
• Energy Finance Solutions
• Enterprise Cascadia
• HomeStreet Bank
• Neighbor’s Financial Corp.
• Paramount Equity Mortgage, Inc.
• Quicken Loans
• SOFCU Community Credit Union
• Stonegate Mortgage Corp.
• Sun West Mortgage Company Inc.
• The Bank at Broadmoor
• University of Virginia Community Credit Union Inc.
• Viewtech Financial Services Inc.
• Wintrust Mortgage
• W. J. Bradley Mortgage Capital Corp.
Publication date: 7/23/2012