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

HUD's 203(k) loan helps homeowners buy and rehab properties in disrepair.
HUD's 203(k) loan helps homeowners buy and rehab properties in disrepair.

There are always homes on the market that are sitting in disrepair, and unfortunately very few brave buyers are willing to purchase them. It's not because buyers don't see their potential; it's because the houses need significant renovations that require large amounts of cash that most homebuyers don't have. And buying a house that needs major renovations can be complicated. Sometimes, a bank won't even give you a loan for an "inhabitable" house. If you're even able to secure financing, it's usually a temporary mortgage for the home. You have to get another loan to complete the necessary renovations, and then secure a permanent mortgage once all renovations are complete.

Despite the process you have to go through, renovating and greening a home has many advantages for everyone. Although eco-friendly upgrades may be costly upfront, they provide long-term cost savings through reduced energy and water bills. Greening a home also adds value and marketability if you decide to sell in the future. Not to mention, you're doing your part to improve your community and preserve the environment by conserving water and energy.

The U.S. Department of Housing and Urban Development (HUD) understands the benefits of green renovations and the frustrating process of trying to buy a home in disrepair. HUD also recognizes how important it is to neighborhoods and communities to sell these empty houses and get them updated and occupied. So in response, it introduced the 203(k) loan, which facilitates the process of buying and rehabilitating properties by providing loans based on the post-renovation value of the homes [source: HUD]. The 203(k) loan also includes an escrow account for renovations, so the costs are actually built in to the monthly mortgage payments.

But the 203(k) doesn't apply to just home purchases; it applies to existing homes, as well. So if you've been considering renovating your home to make it more environmentally friendly, but haven't quite figured out how to pay for it, a 203(k) loan could be something you'd benefit from. Read on to learn more about what improvements you can make with a 203(k) loan.