Strip away the cool name and the good press and what do you have left? A program that might not be as good as its namesake, because it sure isn’t saving you any money. With a 4.99% program financing fee, $95.00 annual assessment administrative fee, and possible early prepayment fee you might be getting more of a super villain than a super hero.
Not to say everything about this program is bad, and that there are not a lot of situations where it might be the perfect fit for certain clients, however the name might trick a lot of people into thinking it is something that it really isn’t. The Home Energy Renovation Opportunity doesn’t sound as sexy as the HERO program, but is a more accurate assessment of what the program is—an opportunity to improve things in your home through financing for energy improvements such as solar, windows, plumbing, etc. where repayments are paid through your property taxes, and 100% financing is available.
What a lot of people don’t understand about this program is, since financing for the HERO program is a tax lien and it is paid with your property taxes, it takes first position over other liens against the property such as your mortgage. This could be a big problem if you decided you wanted to either re-finance or sell your home—especially if you don’t have enough equity to pay off the lien.
So be aware that the first position is so important that the Federal Housing Finance Agency prohibits Fannie Mae and Freddie Mac (conventional loans), and FHA from purchasing mortgages or notes with these types of liens on the property—either as refinances or purchases. This means if you decide to sell, you will be limiting your options to buyers who are willing to either pay all cash or put down large sums of down payment money to get a standard loan.
A better option for many people would be to either use the equity in your home to do a small cash-out refinance, which can range from 3.75% to 5% interest over the life of the new loan, or to look into either the 203k home renovation or Fannie Mae Homepath renovation loans, which are attached to the back of your existing mortgage and come with a much lower total price over the life of your loan.
So please be very careful before agreeing to the HERO program. There is a lot of BIG money behind it, and it is being pushed as a "save the planet" type program—while mostly ignoring the details and negative consequences. While I’m not saying that you shouldn't use the program, I just want to make people aware of some of the potential problems that may arise.
As always at WLM Financial, we are here to assist you with all of your real estate and mortgage needs. From buying and selling to refinancing your home, we can help you along. Our goal and my dream is to teach people how to get in the position to be financially free, and with a little bit of hard work and endurance you can get there.