Most of us want to reduce our impact on the environment and are interested in ways that we can lower our monthly utility costs by making our homes more energy efficient. The one thing holding us back is the high initial cost of many of these greener alternatives.
Thankfully, there are several emerging options to help first-time buyers and established homeowners finance energy efficient initiatives.
Some government-sponsored loans and private lenders now offer special financing packages for energy efficient new construction or existing structure improvements. Many states also have special programs for qualified residents. It’s a good idea to check with the U.S. Department of Energy or your state’s energy office for more information about available programs and eligibility standards.
Energy Efficient Mortgages (EEMs) are among the most popular home financing options available today to consumers. EEMs are divided into two categories: new home construction and improvements or upgrades to an existing home. An EEM allows you to buy or refinance a newly-built home that already adheres to certain energy efficiency criteria, or to buy or refinance an older home that will be in compliance with energy efficiency guidelines following renovations and upgrades.
The amount of financing offered for energy efficient homes depends on the home’s energy rating. The higher the rating, the more money you may qualify for. Energy ratings generally involve extensive inspection by a certified professional who is accredited on the state or national level in home energy rating systems (HERS). HERS depends on where the home is located and may be affected by other factors.
When it comes time for en energy ratings inspection, the examiner will look at all of the energy-related attributes of the home: insulation, windows, HVAC systems, air leakage, drafts, and more. Following a comprehensive inspection the rater will provide you with a detailed report that clearly states your home’s energy rating, as well as information regarding your family’s average annual energy consumption and costs. The report could also include recommendations for improving energy efficiency, estimated costs of these improvements, and a breakdown of potential savings or return on the initial investment.
Once the energy rating report has been submitted by the inspector, it must show that the structure is already sufficiently energy efficient or that any suggested improvements are cost effective—that is, any improvements will eventually save you more money that you have to borrow to implement them. The energy rating will determine how much a lender is willing to extend in financing. A favorable rating will incline the lender to add the cost of improvements into the mortgage or may extend your debt to income ratio, helping you qualify for a better interest rate.
Energy efficiency is having an increasingly strong impact on the real estate market. For sellers, energy efficiency financing lets you make improvements that add value to your home and will make it more attractive to potential buyers. If you’re in the market for a new home, choosing energy efficient amenities can help you get more for your money, as lower utility bills mean you can afford to expand your mortgage budget.
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