Green Lending Requirements
Beginning in 2019, Fannie Mae requires a 30% reduction in whole property energy and/or water use to qualify for and enroll in their Green Rewards lending program. At Least half of this reduction must come from energy use. Existing properties must commit to installing energy and water-saving equipment within 12 months of loan origination. Freddie Mac’s Green Advantage program has very similar requirements.
About Green Multifamily Loans
For those of you who need a light refresher or are not familiar with this financing option, we’ve outlined the basics of what you need to know about Green Multifamily Loans.
What is a green loan?
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.
How does a green loan work?
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.
Benefits of Green Multifamily Loans
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 green certification.
Eligibility
Good news! Anyone who is applying for a residential multifamily loan is eligible for a Green Multifamily Loan!
Requirements to Earn Lower Interest Rates
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.
Fannie Mae
Under Fannie Mae, there are two avenues you can take when considering green financing — Fannie Mae Green Rewards or Green Building Certification Pricing. Both of these pathways fall under the Fannie Mae Green MBS Financing.
- If your project does not possess a green building certification but is willing to increase the performance of the energy and water use systems, the Green Rewards program is the route you would qualify for. Fannie Mae offers a free water and energy audit in addition to preferential pricing. To qualify, a property must reduce its energy and water usage by 30%, with at least half of this decrease stemming directly from energy use reduction.
- If your property already has (or will be in pursuit of), a green building certification that is recognized by Fannie Mae, the Green Building Certification Pricing route is your best bet.
Freddie Mac
Freddie Mac offers similar multifamily green lending options through their Green Up®, Green Up Plus®, and Green Certified programs.
- The Green Up and Green Up Plus programs are very similar in that they both require a 30% reduction in projected energy use, and a third-party data collector to monitor and record the energy and water use of the property after occupancy. The primary difference between the two is the third-party reporting that is needed: Green Assessment and Green Assessment Plus, respectively.
- If your property is already certified Green, and at least 20% of the residential units on the property are designated as affordable, you are eligible for the Green Certified loan.
- Also offered by Freddie Mac are the Green Rebate and the C-PACE incentives. Properties that receive an ENERGY STAR Score and submit this to Freddie Mac, are eligible for a rebate. C-Pace financing is focused on commercial properties.
Don’t Get Left Behind!
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 with 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:
- Property energy modeling and utility estimates
- Portfolio Manager Account creation & maintenance
- SEDI and SEP report generation
- Post-occupancy energy monitoring and data collection
- Green Building certifications
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.
Schedule a meeting to have your questions answered, check out our other multifamily & commercial incentive resources, or fill out the form below to request more info.
