GreenYour Home buying
Get a green mortgage
A certified green home outfitted with higher-priced eco-friendly features, such as low-e windows and a tankless water heater, typically costs 3 to 5 percent more than the average house—or about $10,000 extra on a $300,000 home. Likewise, an energy-efficient remodel of a home you want to buy can be quite costly at a time when you're also paying for moving costs. Feeling financially overwhelmed? Relax, because loan companies know what you know: A home with energy- and water-saving features has lower utility bills. Simply ask for a green mortgage that determines your loan amount based on projected energy bill savings, and allows you to roll the costs of any energy improvements into the mortgage, and you’ll soon be sitting in your new green home.
How to get a green mortgage
What is a green mortgage?
There are two types of green mortgages that allow home buyers to afford the purchase or remodel of an energy-efficient home.
- Energy Efficient Mortgages (EEMs) are offered to buyers purchasing new homes with energy-efficient features, such as a LEED or ENERGY STAR certified home. The lending institutions consider the monthly utility bill savings when calculating the loan amount, so home buyers can qualify for larger loan amounts.
- Energy Improvement Mortgages (EIMs) are offered if buyers make energy-efficient improvements to a home they are buying, or if a homeowner refinances a mortgage to pay for an energy-efficient remodel. The expenses of the energy upgrades are rolled into the monthly mortgage amount. The monthly mortgage payment is slightly higher, but the assumption is that the homeowner can afford it due to decreased utility bills.
Steps to get a green mortgage
- Contact a local lending institution and ask if they offer Energy Efficient Mortgages or Energy Improvement Mortgages. All conventional lenders as well as government (US Veterans Affairs and US Federal Housing Administration) loan programs can offer these loans. See Find it! below.
- Get a Home Energy Rating System (HERS) report. Your chosen lending institution will require a HERS report, which estimates energy savings and suggests further efficiency improvements. A HERS report is conducted by a certified energy rater and is often included if you are buying a certified home, so check with the home builder first. Otherwise, you can pay an energy rater for the report. A HERS rating costs between $150 and $400. To find a certified energy rater, see Find it! below.
- Lender determines loan amount based on the present value of the energy savings listed in the HERS rating. For example, if you're buying a home and want an EIM to help you pay for energy upgrades, the HERS report must show that the benefit you'll receive in energy savings will exceed the cost to install the energy improvements. If the savings don't exceed the installed costs, the home won't qualify for a green mortgage.
Find it! Green mortgage resources
To find a green mortgage, start by talking to your local lenders. Even if they don’t offer green mortgages, they may offer credits for buying an energy-efficient home. For example, some lenders may offer credits toward closing fees for new homes that meet efficiency requirements. ENERGY STAR offers a list of New Home Partners who offer incentives for ENERGY STAR-rated homes.
ENERGY STAR maintains a list of lenders who offer Energy Efficient Mortgages (EEMs) for new homes, such as ENERGY STAR-qualified homes. The list of ENERGY STAR lender partners offers basic information about each lender's green mortgage program, as well as contact information.
Residential Energy Services Network (RESNET) certifies home energy raters, who are trained to inspect and verify the energy-efficient features and performance of a home. If you’re shopping for a green mortgage, you’ll need a report from an energy rater.
The Department of Housing and Urban Development (HUD) offers a list of FHA-approved lenders. Any FHA-approved lending institution can make loans covered by EEM insurance.
The Veterans Affairs (VA) offers Energy Efficient Mortgages to qualified military personnel, reservists, and veterans. The loans are for energy improvements when purchasing an existing home. Borrowers should ask their lender about a VA EEM at the beginning of the lending process.
Getting a green mortgage helps you go green because…
- It makes the higher priced energy-efficient home affordable to more home buyers.
- It provides a way for homeowners to pay for energy-efficient remodeling costs on a home they already own.
- Buying an energy-efficient home reduces home energy use, which decreases demand for the production of fossil fuel energy and its associated environmental costs.
Green mortgages consider the amount of monthly savings on utility bills when qualifying an individual for a home loan. The Joint Center for Housing Studies reports that this loan convention could qualify more than 250,000 additional individuals, who could then buy a home that uses less energy to operate. Homes in the US are responsible for 21 percent of the nation’s energy use and belch 335 million metric tons of carbon into the atmosphere each year. Most home emissions are due to the fossil fuels burned to generate electricity and heat.
A study published in the Journal of Industrial Ecology compared the life cycle energy of a standard home with an equivalent energy-efficient home and found a dramatic reduction in the total life cycle energy of the energy-efficient model—from a whopping 16,000 GJ (gigajoule, a unit of energy equal to 109 joules) for the standard home to just 6,400 GJ for the energy-efficient model. Similarly, life cycle greenhouse gas emissions were 1,010 metric tons of CO2 equivalent and 370 metric tons, respectively.
A good financial decision
The Home Energy Saver website offers an example of how a green mortgage can be a good financial decision: “Mike and Debbie Brown decided to buy the house they had been renting for five years using an EEM. They added $3,250 onto their base mortgage to cover weatherization and other energy improvements. All the costs of the energy improvements were paid for through the FHA mortgage, including the cost of the energy rating, so there were no out-of-pocket expenses.
“The improvements were installed as soon as the loan went through. The Brown's mortgage increased by $21.61 a month to cover the energy upgrades. But their utility bills dropped by over $90 a month, leaving them an extra $720 a year. And they own a more valuable house that's comfortable year round."
Decreased energy costs also benefit the homeowner by increasing the value of the home. For every $1 decrease in annual energy costs, the market value of a home can increase by $20.
- Residential Energy Services Network - Fannie Mae Energy Efficient Mortgages brochure
- Wall Street Journal - Going Green to Save Some Green
- US Department of Housing and Urban Development - Energy Efficient Mortgage Home Owner Guide
- Federal Citizens Information Center - Energy Efficient Mortgage Home Owner Guide
- Residential Energy Services Network - Mortgage Information Offers specific information on energy mortgage guidelines for Fannie Mae, Freddie Mac, VA, and FHA loans.
- Home Energy Saver - Financing a Home Improvement A chart that shows the monthly cost savings of buying or remodeling a home with an Energy Efficient Mortgage.
- Home Energy Magazine - No-Regrets Remodeling A book that looks at remodeling strictly from the perspective of energy efficiency and indoor air quality. Includes a section on green mortgages.
- MSNBC - Want a Green House? Prepare to be confused
- ENERGY STAR - What is an Energy Efficient Mortgage?
- CNN Money.com - Go Green with Your Mortgage
- Residential Energy Services Network - Frequently Asked Questions
- The Wall Street Journal - How Green Is My Realtor
- FHA.com - FHA Energy Efficient Mortgages
- ENERGY STAR - Residential Home Improvement: An Overview of Energy Use and Energy Efficiency Opportunities
- Center for Sustainable Systems - CCS Publication: Life Cycle Energy, Costs, and Strategies for Improving a Single Family House
- Home Energy Saver - Financing a Home Improvement
- Residential Energy Services Network - Mortgage Information