In Perspective - Energy-Efficient Financing Programs

Over the last several months this column has covered issues to help with improving energy efficiency at home. Items like solar, heating systems, windows, doors and insulation have been discussed. The Home Star program and the New York's Great Appliance Swap Out program just make a small dent in the overall cost of becoming energy efficient. How do you pay for all of it?

Jimmy Carter's administration first introduced Energy Efficient Mortgages in 1980 when oil prices had reached $35 a barrel. This of course has expanded and changed over the years, but one prominent variation is the FHA Green Mortgage. This mortgage allows for additional borrowing based upon the assumption that an increased income will be available to the homeowner as a result of energy efficiency improvements or in other words savings created by lowering your energy bills.

Energy Efficient Mortgages are usually sponsored by mortgage programs insured by the U.S. federal government. The popularity of the product has been somewhat limited. The New York Times estimates less than 1% of all U.S. home loans are Energy Efficient Mortgages. You have to wonder why that is? A study done 12 years ago, commissioned by the Environmental Protection Agency, found that a home's value rises an average of $20 for each $1 decrease in the Annual Utility Bill. That study, done in 1998, probably reflected the average American's utility bill when oil was selling for $22.00 a barrel. Now that barrel is around $75 and energy cost have risen almost 10% over last year the home value will probably have a better ratio of investment to decrease in utility bills..

There are two types of energy-efficient mortgages (EEMs): one for a new home and one for an existing home. 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. It is possible to apply for energy-efficient financing through a government-insured or conventional loan program. Most energy-efficient financing programs encourage the borrower to have an energy rating for the new or existing home usually referred to as an energy audit.. The energy audit will tell how energy efficient the building is. A rating usually involves an inspection by a professional energy rater, certified under a nationally or state accredited home energy rating system (HERS).

The 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, you get a report that includes the home's energy rating, along with an estimation of annual energy use and costs. The report is likely to include recommended energy improvements, if they are needed.

There is also the Energy Star mortgage that encourages comprehensive energy efficiency improvements to new and existing homes. This mortgage program offers borrowers an opportunity to lower their energy consumption while making significant, affordable improvements to their homes. These mortgages have different requirements. To qualify, a home must either be ENERGY STAR qualified, undergo a Home Performance with ENERGY STAR assessment and improvement process that yields at least a 20% total energy savings, or achieve at least 20% total energy savings via participation in a Weatherization Assistance Program. The home must also be single-family and owner-occupied

Assistance Program. The home must also be single-family (1-4 families) and owner-occupied. This is a e pilot program to Massachusetts, New York, New Jersey, Pennsylvania, and the District of Columbia and so you will have to check with the lenders.

For information about lender requirements under the ENERGY STAR mortgage pilot program contact Howard Banker at HBanker@energyprograms.org

http://www.hud.gov/ll/code/llslcrit.cfm

http://healthandenergy.com/energy_efficient_homes.htm

http://www.fsec.ucf.edu/en/consumer/buildings/homes/ratings/eem/

http://www.energystar.gov/index.cfm?fuseaction=new_homes_partners.locator