Financing
How much a homeowner pays for an energy efficiency upgrade depends on many factors. Some builders make energy efficiency features part of their base price, so there is no additional cost. Others offer a specific upgrade package at a predetermined cost. The additional cost of a system-designed energy-efficient home ranges from zero to $1,500 or more and depends on how the builder's costs are structured, the home's size and design, and the prevailing cost of building materials. The addition of solar photovoltaic systems to a home adds considerably more to the cost.
Even an energy-efficient house that costs more up front may be a better value on a monthly basis when the cost of energy is considered. This example shows why:
This example assumes a base price for the house of $200,000, an upgrade cost of $1,500, and a 30-year mortgage at 6 percent interest. Estimated monthly energy bills are $135 after energy savings of about $40 per month in the energy-efficient home.
The builder, realtor, or lender should be able to help the home buyer calculate the savings based on actual features, costs, and interest rates.
Get More for the Money with an Energy-Efficient Mortgage
Lenders recognize that owning an energy-efficient home makes financial sense and have developed energy-efficient mortgages to encourage consumers to purchase these types of homes. The loans allow consumers to borrow more than they typically would qualify for.
The following features for energy-efficient loans are taken from Fannie Mae, the nation's largest source of funding for mortgages.
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Energy-efficient mortgages (EEM) are available for both purchase and refinance in conjunction with most Fannie Mae first mortgage products, including conventional fixed-rate and adjustable-rate mortgages.
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Monthly savings resulting from energy efficiency can be used to qualify borrowers for a larger mortgage. This means consumers can buy more home in the form of energy efficiency or other upgrades.
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The EEM can be used with many Fannie Mae mortgage products. The guidelines of the selected Fannie Mae mortgage apply, with the EEM allowing for the projected energy savings to provide an adjustment to the loan-to-value and qualifying ratios that favor the borrower.
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To qualify, the buyer must obtain a Home Energy Rating System (HERS) report, which provides a rating of the energy efficiency of the home and estimates the resulting cost savings using average utility rates and usage data. What's the Score? below offers more information on HERS. Building America recommends that every home receive this type of rating and many ENERGY STAR® homes were rated in order to qualify.
What's the Score?
The Home Energy Rating System is a nationally recognized method of evaluating a home's energy performance. Rating professionals are trained in preparing HERS scores and accredited by the Residential Energy Services Network.
A house built to the 1993 Model Energy Code has a HERS score of 80. This is considered a base house for a HERS comparison. Each one-point increase in the score equates to a five percent increase in energy efficiency in heating, cooling, and water heating. As an example, ENERGY STAR homes must be at least 30 percent more efficient than the base house and so would have a HERS score of at least 86. In some states, greater HERS scores are required because of stringent building codes.
HERS scores can be used to compare houses even if they differ in design, size, or type of HVAC equipment.
FHA Energy Mortgage Program
Consumers using Federal Housing Administration (FHA) loan insurance should consider FHA's Energy Mortgage Program. This program helps borrowers to include energy efficiency features in their home by stretching the size of the loan they may qualify for without increasing their down payment. An energy-efficient mortgage is one of many FHA programs that insure mortgage loans. FHA encourages lenders to make mortgage credit available to borrowers who would not otherwise qualify for conventional loans on affordable terms (such as first-time home buyers) and to residents of disadvantaged neighborhoods (where mortgages may be hard to get).
Some builders also work with lenders to offer special mortgage terms, such as a lower interest rate, to help buyers of energy-efficient homes.
Guaranteed Energy Costs and Comfort
Some builders go even further than constructing an energy-efficient home—they guarantee it. These builders are willing to tell buyers how much energy the home should use, and they guarantee that these levels will not be exceeded, backing the guarantees with payments if limits are exceeded. Builders can work with insulation companies or other partners to offer guarantees or caps on their homes' energy costs, or they may develop their own programs. Some cover room comfort by guaranteeing that the thermostat temperature at the center of any room served by that thermostat will not vary by more than three degrees. A Building America team helped to develop these programs. Information on two of these programs can be found at:
Home Buyer's Checklist
Home buyers have a lot to consider when looking at homes. The following checklist provides a way to compare homes against an ENERGY STAR checklist of important features that contribute to a more comfortable, energy-efficient home.
