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How can a 203(k) home loan help you make a home greener?

The Necessary Improvements
Green improvements like insulation not only qualify under the 203(k) loan, they're required in some cases.
Green improvements like insulation not only qualify under the 203(k) loan, they're required in some cases.
© Nichols

You don't have to buy a home to take advantage of a 203(k) loan. You can use the loan to refinance but there are stipulations. You must have paid with cash, and it can't be more than six months since you made the purchase [source: HUD]. HUD allows you a lot of freedom in the purchases that qualify, as well as the improvements you want to make. In fact, the loan would even cover purchasing a home and moving it from one location to another. You can add additions to the home using 203(k) loan money as well, as long as they are connected to the original structure [source: HUD].

The only thing 203(k) loans to do not allow are "luxury" items. HUD defines luxury items as excessive or recreational improvements, or items that aren't permanent fixtures, like swimming pools, satellite dishes, tennis courts, flat-screen TVs and barbecue pits [source: HUD]. Other than that, the door is open to a wide variety of improvements. Your 203(k) loan will cover new paint, siding and even the addition of a deck.

Green improvements not only qualify, they are required in some cases. All of your new construction (i.e. additions to the home) and structural work completed using a 203(k) loan must comply with HUD's Cost Effective Energy Conservation Standards. For all other renovations, several green improvements are required, including improving the thermal efficiency of your home by the addition or replacement of weather stripping, caulking or sealing all openings to the outside of the home, insulating all wall and ceiling areas that were exposed due to your renovations, and ventilating any attic and crawl space areas [source: HUD]. Heating and cooling systems must also be replaced or upgraded according to HUD's standards. All of these required improvements will pay for themselves over time through reduced energy bills. Finally, smoke detectors must be present in every room of the house. Other than that, you have freedom to green your home in any other way you see fit.

Speak with your contractor about the improvements you could include to make the home more green. Some easy options are buying ENERGY STAR appliances, adding energy-efficient windows and adding low-flow plumbing fixtures. All of these green improvements can be financed through your 203(k) loan. If your energy-efficient improvements cost more than the mortgage amount you qualify for, you may be eligible for a $4,000 to $8,000 increase to your mortgage to cover the energy-efficient costs using an Energy Efficient Mortgage [source: HUD]. You may even qualify to add an extra 20 percent to your mortgage amount if you are adding a solar energy system to your home [source: HUD]. Sounds pretty good, doesn't it?

See how much you could borrow and if you qualify for this loan next.