Financing the energy efficient home : actions for the 80's

8 Pages·1981·0.162 MB·English

by  California Energy Commission

DOE/GO-102000-1072
E FS114
NERGY
September 2000
Financing an
E
FFICIENCY
AND
R Energy-Efficient Home
ENEWABLE
CE
NERGY
L The average homeowner spends close to You can benefit from energy-efficient
$1,300 a year on utility bills. But an financing whether you’re buying, selling,
E energy-efficient home—with such features refinancing, or remodeling a home. If
as proper insulation, high efficiency heat- you’re looking to buy an energy-efficient
ing and cooling systems, and energy-effi- home, you can qualify for a better, more
A
cient windows—can lower your utility comfortable home because with lower
bills by 10 to 50 percent. utility costs, you can afford a slightly
R
larger mortgage payment. You can also
It’s easier than you may think to enjoy the obtain financing to make energy-efficient
I savings and comfort of an energy-efficient improvements to an older home before
N home. Since an energy-efficient home is moving in or to your existing home. And
cost-effective, there are financing pro- if you put your home on the market, you
grams available from mortgages to home can use its energy efficiency as an attrac-
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improvement loans, which allow more tive selling point.
people the opportunity to live in such a
home.
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Ahomeowner in Colorado refinanced his home (above) through an energy-efficient mortgage to
pay for the solar electric back-up system installed on the roof.
RTMENTOFE
PA NE This document was produced for the U.S. Department of Energy (DOE) by the National Renewable Energy Laboratory (NREL), a DOE national laboratory. The
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D GY document was produced by the Information and Outreach Program at NRELfor the DOE Office of Energy Efficiency and Renewable Energy. The Energy Efficiency
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Home Energy Rating To help qualify for most energy-efficient
financing, the report usually must show
Most energy-efficient financing programs
that the home is energy-efficient or that
will encourage you to have an energy rating
recommended improvements are cost-
for your new or existing home, which will
effective and will save you more money
tell you and the lender how energy-efficient
than you’d be borrowing to install them.
it is. Arating typically involves an inspec-
While calculating whether a borrower
tion by a professional energy rater who is
qualifies for a mortgage, a lender can rec-
certified under a nationally or state accred-
ognize these savings and add the cost of
ited home energy rating system (HERS).
the improvements into the mortgage. Or,
An energy rater There are several options regarding HERS,
if the home is already energy-efficient, the
so the type of HERS used will depend on
lender can stretch the debt-to-income
will inspect the where you live. Some states even have
qualifying ratio, which is expressed as a
more than one HERS. Some of the organi-
percentage (the ratio is calculated by
energy-related zations listed at the end of this fact sheet
dividing a borrower’s monthly payment
may be able to provide you with more
obligation on long-term debts by the bor-
features of a home. information regarding HERS in your state.
rower’s net effective income or gross
monthly income).
For the most part, an energy rater will
inspect the energy-related features of a
The cost of a home energy rating and how
home, such as insulation levels, window
it can be paid—by the borrower, the seller,
efficiency, heating and cooling systems,
the lender, the real estate agent, or financed
and air leakage. After the inspection, the
as part of the mortgage—as well as the
energy rater will probably give you a
availability of certified energy raters, can
report that includes the home’s energy rat-
vary from state to state and from one
ing along with an estimation of annual
energy-efficient financing program to
energy use and costs. The report also may
another.
include recommended energy-efficient
improvements, if needed, and their costs,
as well as the potential annual savings and
eventual payback of the improvements.
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Ahome energy rating inspection sometimes involves a duct blaster test, which measures air
leakage in the ductwork.
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An Example of a HERS and Its Reports
HERS Scale AHome in Need of Energy-Efficient Improvements
Annual Energy Use & Costs without Improvements
Points Stars Energy Consumption
Description Energy Use* Energy Cost
0-39 ✪ More than 3 x the reference
home Space Heating 78.5% 223.44 Mbtu $1,141.43
40-59 ✪✪ More than 2 x and up to 3 x the Space Cooling 10.5% 29.79 Mbtu $645.77
reference home
Water Heating 6.2% 17.60 Mbtu $88.02
60-79 ✪✪✪ More than 1 x and up to 2 x the
reference home Other Energy Uses 4.9% 13.92 Mbtu $265.04
80-85 ✪✪✪✪ Reference home level and up to Total 100% 284.79 Mbtu $2,140.26
30% less than reference home
86-91 ✪✪✪✪✪ 30% less and up to 60% less Source: National Home Energy & Resources Organization, Inc.
*Mbtu= 1,000,000 Btu
than reference home
Table 3. Based on the HERS scale in Table 1, this 1,475 square-foot
92-100 ✪✪✪✪✪ + 60% less and up to 100% less home in Tulsa, Oklahoma, received a score of only 21 points and one
star. The home has single-paned windows, a 40-gallon natural gas
than reference home
water heater, natural gas central furnace, and an electric central air
conditioner. Amanual thermostat controls the furnace and the air con-
Table 1. This scale, developed by the National Home Energy Rating ditioner. Equivalent carbon-dioxide emissions of 31.01 tons per year.
Systems Council, is based on the U.S. Department of Energy’s national
voluntary guidelines for HERS uniformity. For rating purposes, a sub- Estimated Annual Energy Use & Costs
ject home is compared to a “reference home,” which scores 80 points
with Improvements
on a 100-point scale with a rating of four stars. Every 5% decrease in
the annual energy costs between the subject home and the reference Description Energy Use* Energy Cost
home increases the subject’s home score by 1 point from 80 points.
Meanwhile, every 5% increase reduces the score by 1 point from 80
Space Heating 58.7% 63.99 Mbtu $326.90
points. Note: your state may use a different HERS and scale.
Space Cooling 12.4% 13.46 Mbtu $291.73
HERS Reports
Water Heating 16.2% 17.60 Mbtu $88.02
An Energy-Efficient Home
Estimated Annual Energy Use & Costs Other Energy Uses 12.8% 13.92 Mbtu $265.04
Description Energy Use* Energy Cost
Total 100% 108.97 Mbtu $971.69
Space Heating 23.9% 21.90 Mbtu $110.33
Source: National Home Energy & Resources Organization, Inc.
Space Cooling 33.2% 30.41 Mbtu $588.61 *Mbtu= 1,000,000 Btu
Table 4. The homeowner will save more than 50% annually in energy
Water Heating 16.6% 15.23 Mbtu $76.14 costs if recommended energy-effiecient improvements are made to the
house in Table 3. These improvements include sealing heating and
Other Energy Uses 26.3% 24.12 Mbtu $272.36 cooling ducts, caulking, weatherstripping, installing a more energy-
efficient central cooling system (10 SEER), installing more insulation in
Total 100% 91.66 Mbtu $1,047.44 the crawlspace/basement and in the ceiling, and insulating hot water
pipes. Payback for the improvements is estimated at a little more than
4 years. Equivalent carbon-dioxide emissions of 10.88 tons per year.
Source: National Home Energy & Resources Organization, Inc.
*Mbtu= 1,000,000 Btu
Table 2. Based on the HERS scale in Table 1, this brand new, energy-
efficient, 3,585 square-foot home in Houston, Texas, received a score of
89 points and five stars. The home features double-glazed windows, a
40-gallon natural gas water heater, a natural gas central air furnace,
and an electric central air conditioner. Aprogrammable thermostat
controls the furnace and air conditioner.
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Energy-Efficient Financing through its approved lenders, for borrow-
Programs ers who would not otherwise qualify for
conventional loans on affordable terms,
You can apply for energy-efficient financ-
such as some first-time home buyers and
ing through a government-insured or con-
some residents of disadvantaged neigh-
ventional loan program. Some states even
borhoods.
have programs for their residents, so it’s a
good idea to contact your state energy
FHAEnergy-Efficient Mortgage
office to find out if your state does.
FHAallows borrowers to finance the cost
of adding energy-efficient improvements
There are two types of energy-efficient
to new or existing homes as part of their
mortgages (EEMs): one for a new home
FHA-insured purchase or refinancing
and one for an existing home. With an
mortgage.
EEM, you can purchase or refinance a
home that is already energy-efficient. Or
•Energy-efficient improvement costs of
you can purchase or refinance a home that
There are two types $4,000 or 5 percent of the property value
will become energy-efficient after energy
(up to $8,000), whichever is greater, can
saving improvements are made. Most
of energy-efficient be financed.
energy-efficient financing programs offer
•The FHAmaximum mortgage limit for
both types of EEMs, as well as home
mortgages: one for a an area may be exceeded by the cost of
improvement loans for making energy
the improvements.
efficiency upgrades to your existing home.
new home and one for •No additional down payment is
required.
Here’s an overview of some of the energy-
an existing home. •No requalifying is necessary.
efficient financing programs available.
•No new appraisal is needed.
Each program is subject to change; there-
•Up to $200 of the cost of a home energy
fore, you should contact a program directly
rating may be included in the mortgage.
for the most current, detailed information.
This EEM can be used in conjunction with
Government-Insured
several other FHA-insured mortgages,
U.S. Department of Housing and including the 203(k) rehabilitation mort-
Urban Development gage insurance described below.
Under the U.S. Department of Housing
FHASection 203(k) Rehabilitation
and Urban Development (HUD), the Fed-
Mortgage Insurance
eral Housing Authority (FHA) insures
FHASection 203(k) rehabilitation mort-
mortgage and home improvement loans,
gage insurance provides a borrower with
a single loan that covers both the purchase
or refinancing and the cost of major home
How an EEM Can Save You Money
improvements, including those that save
Borrower finances 100% of energy improvements (7.25%*—30 year term) energy. The program allows borrowers to
Standard Mortgage New EEM complete improvements after the loan
closes. The funds are placed in an escrow
Energy Improvement Costs $ 3,000 account and released as improvements are
made.
Appraised Value $100,000 $103,000
(add cost of improvements)
•Total cost of improvements must exceed
Down Payment $ 10,000 $ 10,000 $5,000.
•The total property value must still fall
Mortgage Amount $ 90,000 $ 93,000
within the FHAmortgage limit for the
area. (The property value is determined
P&I $ 614 $ 634
by whichever is less: the value before
Energy Savings (monthly) $ — $ (50) the rehabilitation plus the cost of the
rehabilitation or 110 percent of the
Total Monthly Payment $ 614 $ 584
appraised value after rehabilitation.)
Source: Fannie Mae *interest rates subject to change
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U.S. Department of
Veterans Affairs
The U.S. Department of Vet-
erans Affairs (VA) guaran-
tees mortgage loans for
veterans with active duty
service and qualified
reservists. Its EEM can be
used to purchase or refi-
nance a home along with the
cost of making energy-effi-
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This single mother (left) used an energy-efficient mortgage to purchase and upgrade her home is offset by the expected
in Richmond, Virginia. reduction in utility costs.
•More than $6,000 based on
FHAEnergy-Efficient Home Mortgage a value determination by VA.
When purchasing an energy-efficient
home, an FHA-approved lender can AVArefinancing loan may not exceed 90
stretch the borrower’s debt-to-income percent of the home’s appraised value
ratio by 2 percent. plus the costs of the improvements.
FHAMortgage Increase for Solar Conventional
Thermal Systems
Most of the national lenders who offer
You can apply for The maximum loan limit under FHA’s energy-efficient financing operate through
standard 203(b) or 203(k) property rehabil-
one of the following programs.
energy-efficient itation mortgage insurance can be
exceeded by 20 percent if the home has or ENERGYSTAR®Mortgage
financing through a will have a passive or active solar heating
system. The home must also have a 100 The ENERGYSTAR®Homes program—spon-
goverment-insured or percent operational, conventional backup sored jointly by the U.S. Department of
system. Energy and the U.S. Environmental Pro-
tection Agency—promotes voluntary part-
conventional loan
FHATitle I Property Improvement nerships with home builders to construct
program. Loan Insurance new homes that are 30 percent more effi-
FHAalso insures home improvement cient than the guidelines established by the
loans, including those that will make a Model Energy Code—a “model” national
home more energy-efficient, for home- standard for residential energy efficiency.
owners with FHA-insured mortgages. It
features: The program also encourages lenders to
provide EEMs for certified ENERGYSTAR®
•Loans up to $25,000 for a single-family homes. An ENERGYSTAR®mortgage offers a
home minimum 2 percent stretch on a bor-
•Loans insured up to 20 years rower’s debt-to-income ratio, plus at least
•No required home energy rating reports. one additional incentive for borrowers.
Incentives may include:
•Alower interest rate
•Adiscount on closing costs and/or orig-
ination fees
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Some national lenders
offer conventional
energy-efficient Whether you're buying or selling an energy-efficient home, it's best to use a realtor that is famil-
iar with energy ratings and energy-efficient financing in your state.
financing through
•Up to a 4 percent extension of the debt- •Ahome buyer can finance 100 percent of
various programs. to-income ratio stretch the energy efficiency improvements
•Paying for the cost of the home energy without increasing the down payment.
rating.
Residential Energy Efficiency
Fannie Mae Improvement Loan
Fannie Mae is partnering with utility com-
Fannie Mae—a private, shareholder-
panies to provide loans to utility cus-
owned corporation—operates under a
tomers for the installation of
congressional charter that directs it to
energy-efficient home improvements. The
channel efforts into increasing the avail-
loans feature:
ability and affordability of homeowner-
ship. It doesn’t lend money directly to
•Abelow-market interest rate
home buyers; it purchases mortgages from
•An unsecured financing option
lenders, ensuring that funds are available.
•Up to $15,000
•Aterm of up to 10 years
Energy-Efficient Mortgage
•A“whole-house” or bundled approach
Fannie Mae encourages lenders to offer its
to efficiency improvements.
EEM by providing incentives and specific
criteria for those that it’s willing to pur-
Freddie Mac
chase from lenders. Both existing and new
homes fall under this EEM. Freddie Mac is a stockholder-owned, con-
gressionally chartered corporation that
•Several approved home energy rating works to create a continuous flow of funds
methods and programs, not just a HERS, to mortgage lenders in support of home-
are allowed to evaluate a home’s energy ownership and rental housing. It pur-
efficiency. chases mortgages from lenders and
•For existing homes, the cost of improve- packages them into securities that are sold
ments is limited to 15 percent of its to investors, providing homeowners and
total cost. There is no limit imposed renters with lower housing costs and bet-
on the cost of improvements for new ter access to home financing.
construction.
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Energy-Efficient Mortgage •100 percent financing of energy effi-
Like Fannie Mae, Freddie Mac provides ciency upgrades
incentives and criteria, as well as flexible •No additional down payment, mortgage
guidelines, for EEMs that it’s willing to insurance obligation, or requalification
buy, which encourage lenders to offer •Maximum qualifying ratios that are 5
them. However, the EEMs are limited to percent better than standard ratios and 3
purchasing existing energy-efficient percent better than regular EEMs
homes or those to be retrofitted or reno- •Lower than prevailing market interest
vated for energy efficiency. rates and closing costs.
•Several home energy rating methods Residential Financing Program
and/or documentation, not just a HERS For energy-efficient home improvement
It's always a good report, are acceptable. loans, E Seal’s program participates with
•Lenders can exceed the standard 2 per- Fannie Mae’s Residential Energy Effi-
idea to ask lenders, cent debt-to-income stretch at their own ciency Improvement Loan program (see
discretion. page 6).
energy raters, and •It allows a broader range of energy-
efficient improvements than most EEM
realtors for references. programs. When it comes to energy-efficient financ-
ing—whether you want to purchase, refi-
E Seal nance, or remodel a home—it’s best to
work with lenders and/or real estate
E Seal, an Edison Electric Institute pro-
agents who are familiar with home energy
gram, provides energy-efficient solutions
ratings and program requirements. If
for home buyers, residential energy cus-
you’d like a home energy rating report,
tomers, small business customers, and
it’s also best to work with a certified
home builders.
energy rater. In all instances, it’s always a
good idea to ask for references and check
Energy Efficiency Mortgage
companies with your local better business
This EEM is available through utilities
bureau.
with E Seal certified programs. It can be
used to finance the purchase of a new
home with energy efficiency upgrades or
to refinance an existing home while
adding these improvements. It features:
Resources
The following are sources of additional information on Organizations
energy-efficient financing.
E Seal
The Energy Efficiency and Renewable Energy Edison Electric Institute
Clearinghouse (EREC) 701 Pennsylvania Ave., NW
P.O. Box 3048 Washington, DC 20004-2696
Merrifield, VA22116 Phone: [phone]
Phone: 1-800-DOE-EREC (1-800-363-3732) Web site: http://www.eei.org/esg/e_seal/
E-mail: [email protected]
ENERGYSTAR®Homes
Web site: http://www.eren.doe.gov/consumerinfo/
Phone: 1-888-STAR-YES (1-888-782-7937)
EREC provides free general and technical information to the E-mail: [email protected]
public on many topics and technologies pertaining to energy Web site: http://yosemite.epa.gov/appd/eshomes/
efficiency and renewable energy. eshaware.nsf
You can also contact your state and local government (Continued on page 8)
energy offices for region-specific information on energy-
efficient financing.
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(Continued from page 7) Web Sites
Consumer and Lender Resources for Energy Efficiency
Fannie Mae
Financing and Home Energy Ratings
3900 Wisconsin Avenue, NW
Alliance to Save Energy
Washington, DC 20016-2892
Web site: http://www.ase.org/finance2.htm
Phone: 1-800-7FANNIE (1-800-732-6643)
Web site: http://www.fanniemae.com/ Financing Solutions
Consumer Web site: http://www.homepath.com/ U.S. Department of Energy
Office of Energy Efficiency and Renewable Energy
Federal Housing Authority (FHA)
Web site: http://www.eren.doe.gov/financing/
U.S. Department of Housing and Urban Development
homeowners.html
(HUD)
Provides useful links to energy efficiency and renewable
451 7th Street SW
energy financing resources.
Washington, DC 20410
Web site: http://www.hud.gov/
EEM program Web site: Reading List
http://www.hud.gov/progdesc/energy-r.html
The list is not exhaustive, nor does the mention of any
FHAcan be contacted through your local HUD office, which
publication constitute a recommendation or endorse-
can be found in the phone book or on HUD’s Web site.
ment.
Freddie Mac
Borrower’s Guide to Financing Solar Energy Systems: AFed-
8200 Jones Branch Drive
eral Overview, Second Edition,produced for the U.S.
McLean, VA22102-3107
Department of Energy (DOE) by the National Renew-
Phone: 1-800-FREDDIE (1-800-373-3343)
able Energy Laboratory (NREL), 1999. Available in PDF
Web site: http://www.freddiemac.com/
on the DOE Million Solar Roofs Web site at
National Home Energy & Resources Organization http://www.eren.doe.gov/millionroofs/pdfs/26242.pdf
(HERO) or from NRELat [phone].
4005 Poplar Grove Road
Energy-Efficient Mortgage Homeowner Guide,Pacific Gas &
Midlothian VA23112
Electric Company, 1996. Available on the Alliance to
Phone: [phone]
Save Energy Web site at
Fax: [phone]
http://www.ase.org/nrgymort.txt.
E-mail: [email protected]
Web site: http://www.national-hero.com/
Financing Home Energy Efficiency: An EEM Handbook,R.
Provides state-by-state listings of the energy raters it trains and Martin, Iowa Association of Municipal Utilities, 1997.
certifies. Available on the Florida Solar Energy Center Web site at
http://www.fsec.ucf.edu/ratings/LndrHndBk/.
Residential Energy Services Network (RESNET)
P.O. Box 4561 AShopper’s Guide, Energy-Efficient Mortgages, More House
Oceanside, CA92052-4561 for Less Money,DOE, 1999. Available from the DOE
Phone: [phone] Office of Consumer Information through e-mail at con-
Fax: [phone]. [email protected] or at 1000 Independence
E-mail: [email protected] Ave., SW, 4A-227, MA-9, Washington, DC 20585.
Web site: http://www.natresnet.org/
Anational network of mortgage companies, real estate broker-
ages, builders, appraisers, utilities, and other energy and hous-
ing professionals dedicated to improving the energy efficiency
of the nation’s housing. Its provides state-by-state directories
of conventional EEM lenders and energy raters.
U.S. Department of Veterans Affairs (VA)
Phone: [phone]
VAHome Loan Guaranty Web site: http://www.
homeloans.va.gov/
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