Green Mortgages

The federal government has also gotten into the act. The Federal Housing Administration and Department of Veterans Affairs offer an Energy Efficient Mortgage, or EEM, and both Fannie Mae and Freddie Mac underwrite EEMs from traditional lenders. However, green mortgages have been operating somewhat under the radar, with only about 30,000 EEMs granted each year. In an effort to boost that figure, The Housing and Economic Recovery Act of 2008 included a provision assigning the department of Housing and Urban Development the responsibility to make it easier for homeowners to obtain one by streamlining the currently cumbersome application process. Other goals include increasing the number of services to conduct home energy analyses and promoting the fact that these green mortgages exist. The amount for green improvements has also been bumped up from the previous maximum of $8,000 to 5 percent of the value of the property. Banks and finance companies that offer green mortgages look for homes with southern exposure to maximize energy efficiency. Photo courtesy of Borrego Solar. Regardless of which program or lender you choose, financing is contingent on the house passing an energy audit known as the Home Energy Rating System (HERS). A certified green building consultant conducts an on-site inspection to assess the energy efficiency of the house then determines the necessary steps for the homeowner to qualify for a green mortgage. Show Me the Money Though it sounds like a lot of work initially, there are big payoffs in the future. For one, the fact that a homeowner or prospective buyer does the legwork and is also concerned about the environment presents him as a good credit risk and more likely to qualify for a mortgage, even when credit is tight. Gregg Steiner, a green consultant and founder of Green Life Guru in Los Angeles, concurs, saying, “It shows prospective lenders that the homeowner is a serious person who is taking smart steps to save money.” Mike Hall, president of Borrego Solar Systems, a solar electric contracting company with offices in El Cajon and Berkeley, Calif., and Chelmsford, Mass., says that many of his customers have reduced their monthly energy bills by $100 to $200 after installing a solar power system. And not only do green houses save their owners money each month, but the homes generally end up being worth more. “The general rule of thumb is that for every dollar saved annually on energy costs, the appraised value of a house will increase by $10 or $20,” says Hall. A Different Shade of Green There are two variations on green mortgages. One is a Location Efficient Mortgage, or LEM, which operates like an EEM with a twist: The lender assumes that city dwellers have more monthly disposable income because they are more likely to walk than drive and use public transportation to get to work, school and shops. Green mortgages aren’t just for newly built homes. They can be used to finance homes that would have otherwise been destroyed. Photo courtesy of Nickel Bros. House Moving. Another kind of green mortgage focuses on reclaiming an old home slated for demolition. The Moving Home mortgage from Seattle’s Viking Bank covers the purchase of the house, the move and preparation of the new home site. Once the house is settled at its new location, the owners can upgrade the insulation and HVAC systems, undoubtedly making the house much more energy-efficient than it was in its previous spot. Ironically, a slow real estate market can lift demand for green mortgages. Indeed, it may be possible to use an existing home’s energy inefficiency to bargain down the selling price. “We suggest an energy audit during escrow so a buyer knows what their energy costs will be on the house,” says Joel Baral of Modern Earth Finance. “Then, he can ask the seller to pay for the repairs or plan ahead for the upgrades.” “Even though many homeowners have been making green improvements in their homes, green mortgages have not caught on as much as they might have,” says Hall. “In a hot real estate market, homeowners rarely run up against borrowing limits. But as the market tightens up and energy prices continue to rise, we expect demand for these products to increase.” Growth in green mortgages in the future will eventually spill over and help to lift the economy. “The trend toward green building and financing are not only great for the environment but also for the economy,” says James Stone, construction and green mortgage specialist at Colonial National Mortgage in Dallas/Fort Worth, Texas. “More green construction projects mean more jobs, more mortgages, more affordable homes and happier homeowners. It all supports people who want to pursue different means of making the world a better place.”

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