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Green Financing Options and Energy Ratings -
The average homeowner in the U.S. spends $1,900 a year on utility bills. This may seem low, but it's the average. Each individual household's annual costs depend, of course, on number of occupants, climate, cost of utility services in the service territory, and other factors. An energy-efficient home with proper insulation, high efficiency heating and cooling systems, and energy-efficient windows can save as much as 10-50% on utility bills. Since a home with energy-efficient features is more cost-effective, there are programs available that provide homebuyers with more options for financing for efficient homes.
People can benefit from green financing options whether they are buying, selling, refinancing or remodeling a home. The range of green financing options gives residential and commercial buyers and sellers a wide range of choices to meet an even wider set of circumstances.
Some green financing programs require an inspection from a professional who is certified under a state or nationally accredited Home Energy Rating System (HERS). For example, to qualify for a Fannie Mae energy-efficient mortgage product, the energy report typically must show that the new home is already energy-efficient or that the recommended improvements for an existing property are cost-effective and will save money. Depending on the specific circumstances, a borrower using an energy-efficient mortgage may qualify for a better rate and/or extra money for energy improvements.
Energy raters test and score homes based on efficiency and other green design features. The rater produces a rating report outlining the recommended steps and approximate costs for increasing the overall efficiency of a home, as well as estimated monthly energy bill savings. Energy raters can be found through online directories. The rater is a fundamental ingredient in the process of establishing a baseline from which to measure a property's current energy performance and the potential for improvement.
Some of the labels one can expect to see when exploring energy-efficient financing options include:
-Energy Star Mortgage
-FHA
-Fannie Mae
-Freddie Mac
-Edison Electric's E Seal program
The energy-efficient mortgage structure for a borrower from Fannie Mae can reach up to 15% of the total loan value. The EEM allows the borrower to add the cost of energy efficiency improvements to the principal of the loan at no compromise in the LTV (loan-to-value ratio). Simply put, a homeowner can finance 100% of the improvements without increasing his/her down payment.
FHA's energy-efficient mortgage structure has been the most widely used EEM over the last 25 years. This loan allows homeowners to borrow up to 5% of the total loan value in cost-effective energy efficiency improvements, not to exceed $8,000 and no less than $4,000.
Freddie Mac and E Seal also offer energy-efficient mortgages, with slightly different criteria.
Borrowers may qualify for an Energy Star Mortgage if the home they are financing is 30% more energy-efficient than guidelines established by the Model Energy Code (an Energy Star Certified home). An Energy Star Mortgage offers a minimum 2% stretch on the borrower's debt to income ratio plus at least one of the following incentives:
-Lower interest rate
-Discount on closing costs and/or origination fees
-Paying for the cost of the home energy rating
The wide range of financing options available for homeowners and building owners includes utility financing in some service territories. In some instances, the local utility provides zero-percent financing for energy efficiency. In other areas, banks, nonprofits, and other organizations offer alternatives for financing energy efficiency and renewable energy technologies.
The Department of State Renewables and Efficiency (DSIRE) is a comprehensive source of information on state, local, utility, and federal incentives that promote renewable energy and energy efficiency.
http://www.dsireusa.org/
Home Energy Rating System (HERS) -
Provides a standardized evaluation of a home's energy efficiency and expected energy costs. In other words, an energy rating summarizes how a property uses energy and highlights specific opportunities to save energy throughout the home or building. A home energy rating can be used as a tool to help a home owner or home buyer qualify for green financing options such as an energy-efficient mortgage or an energy improvement mortgage.
Energy-Efficient Mortgage (EEM) -
When a homeowner or homebuyer applies for a home loan, at the time of purchase or refinance, he or she can roll the cost of needed energy improvements into the mortgage, amortizing the cost of the improvements over the life of the mortgage, based on the expected savings. This structure is especially attractive because there is no compromise in the loan-to-value (LTV) ratio for the borrower. There are now a range of green financing options, and the EEM represents an attractive option in specific circumstances.
Energy Savings Performance Contract (ESPC) -
An agreement between an energy services company (ESCO) and a building owner which creates a win-win for both parties and saves energy, money, and other resources. One of the most attractive features of an ESPC is that the contractor only receives payment when he/she proves that savings has been created on the utility bill.
Future Value Financing (FVF) -
FVF is EcoBroker's new term for describing mortgage financing based on appraisals of a property's forecasted value, after retrofits and renovations. In this structure, the comps an appraiser uses in his/her analysis are those properties which have already been renovated or retrofitted with energy efficiency and/or other improvements. The loan-to-value ratios for such mortgage products are based on the forecasted value of the property. Current market products of this nature are not typically limited in size, and apply to jumbo or smaller products. Current market products of this nature are also offered in the form of permanent rather than construction financing.
Cascadia Green Building Value Incentive -
http://www.cascadiagbc.org/education/finance-initiative/cascadia-finance-initiative/
Financing an Energy-Efficient Home -
https://maxvps027.maximumasp.com/V027U37YVE/userdef/PDFs/FinancinganEEHome.pdf
Energy Efficient-Mortgage Home Owner Guide -
http://www.pueblo.gsa.gov/cic_text/housing/energy_mort/energy-mortgage.htm
Energy Ratings and Mortgages -
http://www.natresnet.org/ratings/overview/default.htm
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