Financing an Energy-Efficient Home
You can benefit from energy-efficient financing whether you're buying, selling, refinancing, or remodeling a home. If you're looking to buy an energy-efficient home, you can qualify for a better, more comfortable home because with lower utility costs, you can afford a slightly larger mortgage payment. You can also obtain financing to make energy-efficient improvements to an older home before moving in or to your existing home. If you put your home on the market, you can use its energy efficiency as an attractive selling point.
Energy-Efficient Financing Programs
You can apply for energy-efficient financing through a government-insured or conventional loan program. Some states even have programs for their residents, so it's a good idea to contact your state energy office to find out if your state does.
There are two types of energy-efficient mortgages (EEMs): one for a new home and one for an existing home. With an EEM, you can purchase or refinance a home that is already energy efficient, or you can purchase or refinance a home that will become energy efficient after energy-saving improvements are made. Most energy-efficient financing programs offer both types of EEMs, as well as home-improvement loans for making energy-efficiency upgrades to your existing home.
Home Energy Rating
Most energy-efficient financing programs will encourage you to have an energy rating for your new or existing home, which will tell you and the lender how energy efficient it is. A rating typically involves an inspection by a professional energy rater who is certified under a nationally or state accredited home energy rating system (HERS). There are several options regarding HERS, so the type of HERS used will depend on where you live. Some states even have more than one HERS.
For the most part, an energy rater will inspect the energy-related features of a home, such as insulation levels, window efficiency, heating and cooling systems, and air leakage. After the inspection, the energy rater will probably give you a report that includes the home's energy rating, along with an estimation of annual energy use and costs. The report also may include recommended energy improvements, if needed, and their costs, as well as the potential annual savings and eventual payback of the improvements.
To help qualify for most energy-efficient financing, the report usually must show that the home is energy efficient or that recommended improvements are cost effective. Ultimately, any improvements will save you more money than you'd be borrowing to install them. While calculating whether a borrower qualifies for a mortgage, a lender can recognize these savings and add the cost of the improvements into the mortgage. Or, if the home is already energy efficient, the lender can stretch the debt-to-income qualifying ratio, which is expressed as a percentage (the ratio is calculated by dividing a borrower's monthly payment obligation on long-term debts by the borrower's net effective income or gross monthly income).
The cost of a home-energy rating and how it can be paid—by the borrower, the seller, the lender, the real estate agent—or financed as part of the mortgage, as well as the availability of certified energy raters, can vary from state to state and from one energy-efficient financing program to another.