Energy Ratings and Mortgages
Home energy ratings provide a standard measurement of
a home’s energy efficiency. Ratings are used for both
and new and existing homes. In new homes rating often
verify energy performance for the ENERGY STAR homes
program, energy efficient mortgages, and energy code
compliance. Homeowners who want to upgrade the home’s
energy efficiency can use the energy rating to evaluate
and pinpoint specific, cost-effective improvements. For
existing homes, homeowners can receive a report listing
cost-effective options for improving the home’s energy
rating. An energy rating allows a homebuyer to easily
compare the energy performance of the homes being
considered.
There are two types of ratings:
- Projected ratings – Ratings performed
prior to the construction of a home or prior to the
installation of energy improvements to an existing
home.
- Confirmed ratings – Ratings completed
using data gathered from an on-site inspection,
which could include performance testing of the home.
Confirmed ratings involve an on-site inspection of a
home by a residential energy efficiency professional, a
home energy rater. Home energy raters are trained and
certified by a RESNET accredited home energy rater
training provider.
The home energy rater reviews the home to identify
its energy characteristics, such as insulation levels,
window efficiency, wall-to-window ratios, the heating
and cooling system efficiency, the solar orientation of
the home, and the water heating system. Performance
testing, such as a blower door test for air leakage and
duct leakage, is usually part of the rating.
The data gathered by the home energy rater is entered
into a RESNET accredited computer program and translated
into rating score. The home receives a score between 1
and 100, depending on its relative efficiency. An
estimate of the home’s energy costs is also provided
in the report. The home’s energy rating is then
equated to a Star rating ranging from one star for a
very inefficient home to five stars for a highly
efficient home.
Unlike an energy audit or a weatherization
assessment, a home energy rating is a recognized tool in
the mortgage industry. Home energy ratings can be used
in a variety of ways in the housing industry. The star
and the rating score provide an easily understandable
means to compare more efficient homes by their relative
energy efficiency, since a rating quantifies the energy
performance of a home.
Energy Mortgages
An energy mortgage is a mortgage that credits a
home’s energy efficiency in the home loan. For an
energy efficient home, for example, it could mean giving
the home buyer the ability to buy a higher quality home
because of the lower monthly costs of heating and
cooling the home. For homes in which the energy
efficiency can be improved, this concept allows the
money saved in monthly utility bills to finance energy
improvements.
There are two types of energy mortgages:
- Energy Improvement Mortgage - Finances the
energy upgrades of an existing home in the mortgage
loan using monthly energy savings
- Energy Efficient Mortgage - Uses the energy
savings from a new energy efficient home to increase
the home buying power of consumers and capitalizes
the energy savings in the appraisal
Resources
Mortgage Information
There is an emerging market
force towards energy efficient homes. From
Florida to Alaska mortgage lenders are
increasingly using energy mortgages to make
homes more affordable and poising their
companies to capture this new market trend.
What is an energy mortgage? An
energy mortgage is a mortgage that credits a
home’s energy efficiency in the home loan.
There are two types of energy mortgages:
Energy Improvement Mortgage -
Finances the energy upgrades of an existing home
in the mortgage loan using monthly energy
savings
Energy Efficient Mortgage
- Uses the energy savings from a new energy
efficient home to increase the home buying power
of consumers and capitalizes the energy savings
in the appraisal
In 1995 the Residential Energy
Services Network (RESNET) was formed as a
partnership between the national mortgage
industry, Energy Rated Homes of America, and the
National Association of State Energy Officials.
The ability to leverage a home
buyer's investment in energy efficiency
increases the number of qualified home buyers
and increases the purchasing power of the
consumer. A recent analysis by the Environmental
Protection Agency confirmed that
energy efficient mortgages can have a dramatic
impact on increasing the opportunities for home
ownership. The analysis found that an average of
6.8% more families would be able to qualify for
a mortgage through an energy efficient mortgage.
Another study published in the
Appraisal Journal documented that the market
value of a home increases $20 for every $1
decrease in the annual energy costs. According
to a recent analysis by the Pacific Northwest
National Laboratory building a home to exceed
the Model Energy Code would result in an annual
savings of $170 to $425. Applying these findings
to the analysis published in the Appraisal
Journal would equate to an increased home market
value of between $4,250 to $10,625.
Fannie Mae, Freddie Mac, FHA
and VA have adopted special
underwriting guidelines to make
financing energy efficiency less burdensome. The
energy mortgage guidelines for each secondary
mortgage market can be accessed below:
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Fannie Mae Energy Mortgage
Program
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FHA Energy Mortgage Program
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Veterans Administration Energy
Mortgage Program
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Freddie Mac Support for Energy
Conservation
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The Environmental Protection Agency has a web
page dedicated to Energy Efficient Mortgages. To
view the page click
here.
The Environmental Protection agency has a
listing of ENERGY STAR Homes lenders that will
under write energy efficiency mortgages. To
download the listing click
here. If you are a lender and would like to
become an ENERGY STAR Lender Partner click
here.
Home Energy Ratings: The Key to Energy
Mortgages
Home energy ratings provide a standard
measurement of a home’s energy efficiency.
Ratings are used for both and new and existing
homes. The rating report will include all of the
information that you need to underwrite an
energy mortgage including the calculation of the
monthly energy savings and present value. It
makes it easy for a lender!
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