Ask David Andrews what he thinks about the rise in popularity of Energy Efficient (green) Mortgages, and he’ll respond with a chuckle. The branch manager of Cherry Creek Mortgage Co. finds humor in the fact that no mortgage can really be green. “The mortgage itself isn’t green, but the improvements made to the home are,” Andrews points out. While one can question whether a mortgage can actually be green, it is impossible to deny the rise in popularity of Energy Efficient Mortgages and Energy Improvement Mortgages in today’s ever-changing world. As homeowners push to become more green, the lending landscape is adapting accordingly.
According to Forbes Media’s Investopedia, “a green mortgage is a mortgage that sets aside money for home improvements that will increase energy efficiency within the home. This increase in energy efficiency will lower the homeowner’s monthly energy costs, improving their chances of being able to service the mortgage.” In other words, green mortgages are based on the premise that a more energy efficient home will result in lower monthly utility bills. Because a person will pay less in utility bills, the savings will translate into income, allowing the homeowner to qualify for a larger loan. That person can either buy a bigger home, or increase the size of the remodeling job they’ve planned.
The process for establishing an energy efficiency rating on a home is fairly simple. First, the home is appraised to determine its value. Then, as Andrews explains, an energy rating is performed on the home, typically using a blower door test. “A big fan is placed in the front door, all the other doors are shut, and air is blown out to see where it is leaking from,” he says. “Smoke sensors are used to determine where the air is leaking.” Once this process is completed, an E-Star rating is given to the home. E-Star ratings are part of a certified national program that measures efficiency on a scale of 0-100. The E-Star rating is incorporated into the loan, which increases the loan-to-value rating, raising the amount of money that the homeowner is able to borrow from the lender.
There are a number of examples of what can be incorporated into a green mortgage, says Jim Van Buskirk, Mutual of Omaha’s vice president of mortgage lending for Colorado. “Examples include straw-bale construction and using solar energy outside the power grid by installing solar panels onto the roof of the existing home,” he says. Replacing windows, reducing drafts by sealing air leaks, sealing leaky ductwork, sealing the crawl space, adding insulation and purchasing a high-efficiency water-heater, furnace or heat-pump are other examples of ways to save energy.
Green mortgages have been around since the late 1970s, but for a number of reasons have never really blossomed. One reason is that banks and lenders simply haven’t raised awareness of the product.
The green loan requires a lengthy and detailed process for underwriters.
In some cases, they do not promote energy mortgages in order to save themselves the hassle. Andrews believes that while loan originators are trained on the subject of green mortgages, they rarely use them, so they aren’t top of the mind. “An analogy is when a sales person is trained on a certain product, but doesn’t sell the product. Eventually, they will forget what the product is about,” Andrews explains.
Andrews is able to lend even more insight as to why green mortgages aren’t more popular in the remodeling world. “If a homeowner wants to replace their windows, then they think about energy savings. If they want to upgrade their kitchen, bath, etc., then they aren’t really thinking about energy savings,” he says. However, because nearly every appliance and fixture has some type of efficiency rating, there are ways to save more energy within every project.
Those interested in pursuing a green mortgage should know that all of the national secondary mortgage markets offer energy mortgage products. From Freddie Mac and Fannie Mae to the FHA and VA, energy mortgages are available.
Remember, the best reason for home remodeling is to make your family more comfortable. Every home improvement project – whether or not it’s a green remodel – offers a different return on investment, based on a number of factors. So make sure to put a smile on everyone’s face when doing your part to save the environment.
Mitch Chrismer is a Denver-based freelance writer.
Photo provided by Hunter Douglas
