Welcome to March -
We are almost to the time when it I get itchy to make soe improvements to my house - I'm thinking you might too. And I'm not just talking about some new seed on the lawn.
UPDATED 9/3/2015 - Additional HERO program info and benefits added.
So, over the past few years, sales people have likely been banging your door in trying to sell you anything from solar to windows to siding, on this magical new program called the HERO program.
No down payment, no payments at all - it's all in your property taxes...
Hmm, don't know about you, but my dad said something about things that sound too good to be true...
Let's define what the HERO program is - how does it work?
What does “HERO” mean anyway?
HERO stands for: Home Energy Renovation Opportunity
It provides financing for any energy improvements made to your house, solar, windows, plumbing, etc.
The HERO program is a financing plan, where repayments are paid through your property taxes, 100% financing is available.
The mechanics are realtively simple - the cost of the renovation is under the HERO program atached to your property as a tax lien, the payments (5-20 years) are then added to your annual tax payment. If you have your taxes impounded, your mortage servicer will adjust your payment to match.
The big benefit is that the lien is held against your equity (Alas, if you are upside down, you don't qualify). And no credit score is needed.
This all sounds good and fine - right?
But what happens if you decide to sell your house before the payments are up?
This is where the rub is... So, you put up a solar panel installation and save on your power bill (although you are probably paying those saving out towards the payment through your taxes), 3 years later, your company relocates you and you need to sell your house!
When I look at your taxes (Any good Realtor should review this with you to see if there is anything going on), I will redline that HERO program as it is now a lien on your property.
And it is not just ANY lien, it is in first position, so it takes priority over your mortgage - as you can imagine there are a couple of banks who don't think this is a great idea. To the tune of FANNIE and FREDDIE MAE will not purchase loans with a higher ranking lien - this effectively means that at the moment, FHA financing is not avialable on a home with HERO financing attached.
So, the sales pitch goes like this:
You can transfer the tax to the new owner! Great... But, did the sales guy ask the new owner if they want that extra tax? Ahem...
Reality on the other hand is not quite what was sold. Now that HERO has been around for a few years, we are seeing some results of this. When a buyer learns of the HERO tax that is added on, they are not too happy. In many cases, they are demanding that the owner pay it off, or at least pay off a big part of it. And/Or - they are left with no choice as their FHA financing does not qualify the property.
In the current market where homes are sitting 2-4 months waiting for a buyer, sellers are often forced to pay for some of this. Hero now becomes a negative line item on your net results after a sale.
I'll leave it up to you to decide what is best for your specific situation, I am all for improving our homes efficiency, that said, maybe not through my taxes?!?!
Now - I added these edits as I received some very well pointed comments asking about the benefits of HERO, and there are many. I definitely looked at this from a seller spoint of view.
To get into the benefits a little, let's look at why the HERO program is here -
HERO is a means to make it easier for homeowners to upgrade to energy efficient features, this could be solar, windows, plumbing... There are over 900,000 upgrades that can be done under the program.
The big benefit is - NO MONEY out of pocket, so if you want to get that solar going but can't quite afford it, this is a good deal.
The debt is placed as a tax lien against your property, payments are made through your property taxes. It is spaced out over 5-20 years and there is interest on the debt.
Considering this, my opinion is this:
If you plan on staying in your home, and want to make improvements, HERO offers a low cost option to do so. IT is easy, there are no credit checks and there are lots of contractors who can do it.
The buyer beware part - don't get over charged just becasue you don't get a bill today - you are still paying the bill. Also, keep an eye on what kind of interest they are charging you.
Now, should you have in your mind that *maybe* you might want to move in the next decade... Then consider, it limits the types of loans available, this especially is true in the lower prices - up to $500000.
If you are not selling, it is not that bad a deal.
I encourage your thoughts on this - I am interested in hearing if anyone have had good/bad experiences with the program.
This is a link to an article in the PE about a buyer who is suing for the HERO lien that wasn't disclosed at sale. http://www.pe.com/articles/hero-761687-realtors-property.html