These days, more and more environmentally conscious people are looking to make their homes more energy efficient. If you are looking to buy or build an energy-efficient home, you can actually afford a better home because with lower utility expenses, you can qualify for a slightly higher mortgage payment. You can also get financing to make energy-saving improvements to your older existing home or to one you are buying.
Energy-efficient financing is available through both government-insured and conventional loan programs. Various states even have individual programs for residents, so you may want to contact your state energy office to find out if they have any available programs.
Types of Energy-Efficient Mortgages
There are two types of energy-efficient mortgages, also known as “EEMs”. The first type is for a new home and the other is for existing homes. With an energy-efficient mortgage, you can buy or refinance a home that is already energy efficient, or you can buy or refinance a home that will become energy efficient through improvement you will make. Most energy-efficient financing providers offer both types of EEMs, along with home-improvement loans specifically for making energy-efficiency upgrades to existing homes.
Most of the energy-efficient financing programs will encourage you to get an energy-rating for your home, which lets you and the lender know just how energy efficient the home is. Getting this rating typically involves an inspection by a trained energy rater that is certified under a national or state accredited home energy-rating system (HERS). There are many different home energy-rating system options, so the type of HERS will depend on your location. There are a few states that even have more than one home energy-rating system.
Typically, the energy-rater will inspect the energy related features of the home, including heating, cooling, insulation, window efficiency and air leakage. After completing the inspection, the rater will usually give you a report that shows the home’s energy rating, and an estimate of annual energy use and projected costs. The report may also include recommendations for additional energy improvements and their estimated costs, along with the potential annual savings they would create and estimated time for payback of the improvements.
To satisfy the requirements for most energy-efficient financing, the report must typically show that the home is currently energy efficient or that recommended improvements to the home will be cost effective. Ultimately, the improvements should save you more money than you would be borrowing to have them installed. While determining whether a borrower qualifies for a mortgage, a lender can take these savings into account and add the cost of improvements into the mortgage. On the other hand, if the home is already energy efficient, the lender is allowed to increase the debt-to-income qualifying ratio (which is calculated by dividing a borrower’s monthly payments on long-term debts by his/her net effective income or gross monthly income).
The cost of a home-energy rating and who is allowed to pay it (buyer, seller, borrower, lender, real estate agent-or financed as part of the mortgage) varies in different areas. The availability of certified energy raters can also vary from state to state and from one financing program to another.