Buy More House, Save More Money With Home Energy Rating

A Home Energy Rating System isn’t so standard. Oh really? Yep.

While built green and Energy Star are buzz words these days, especially in the Boulder area, one thing is certain: there’s tons of information, misinformation and constant changing in the way we evaluate what we think is important in our homes.

Some people say they think that buying a green built home will cost them extra money. Maybe yes, maybe no. Other’s think that an Energy Star home or a Green Built home is the same thing…. not really.

How to decipher all this and how to separate out the rumor and conjecture and urban legend from reality? Just ask me, I know it all! No, not really. But I’m working on it. Just finishing up my ecobroker certification and it’s really opened my eyes to many issues that have confused homeowners and home buyers for years. Here’s a little bit on the Home Energy Rating System (HERS) to get us started. The Energy Star, RESNET and similar sites are great resources also.

Now, back to my headline about the HERS not being so standard.

The HERS Score has become a HERS index (nope, it’s not a marital thing) and since July 1, 2006 the standards have changed. The Energy Star Website and the page on The HERS Index has the details so check it out if you want to.

It’s report is similar to a miles-per-gallon rating on a car. HERS are programs which provide evaluations of individual home’s energy-efficiency. A HERS report is prepared by a trained Energy Rater. Factors such as insulation, appliance efficiencies, window types, local climate, and utility rates are used to rate the home and calculate energy costs.

A HERS Report includes:

Overall Rating Score of the house as it is.
Recommended cost-effective energy upgrades.
Estimates of the cost, annual savings, and useful life of upgrades.
Improved Rating Score after the installation of recommended upgrades.
Estimated annual total energy cost for the existing home before and after upgrades.

The basic idea is that with the new rating system, a lower HERS Index means a better score.

Got that? Lower number, better energy efficiency. That’s the bottom line and that’s what you need to know.

Other than that, you need to know that the best way to really know what you have is to hire an Energy Rater. Now you may ask yourself, what the heck is an Energy Rater? Its for real and there are official Professional Energy Raters in our area.

If you’re thinking of getting a home loan and want to consider getting an energy efficient loan or sometimes referred to as ‘green loan’ you’ll want to get an Energy Rater to check out your home.

Ah, so there’s another one: energy efficient loan or green loan.  Ok, so there will be more on that coming up.

Here’s some more on Home Energy Ratings but for the full scoop, check out the other links in this posting when you have more time.

A HERS rating usually costs between $100 and $300. This could be paid for by the anyone willing to pay for it, of course, but  sometimes the cost of the rating may be financed as part of the mortgage. No matter how the rating is paid for, it is a very good investment because an energy efficient mortgage or EEM could save you hundreds of dollars each year.

Many homes qualify for energy upgrades.

One home qualified for $4,816 in upgrades. With the EEM, lenders recognize the savings the upgrades will bring. Borrowers may use these potential savings like extra cash, and add the cost of upgrades into the mortgage, paying them off easily as part of the monthly mortgage payment. Once the upgrades are installed the potential savings turn into real savings.

The other EEM option is for the lender to stretch debt-to-income qualifying ratios to allow a larger loan for a house that is already energy efficient. A debt-to-income ratio “stretch” means that a larger percentage of the borrower’s monthly income can be applied to the monthly mortgage payment. That means the buyer has more borrowing power based up on the same income.

AVAILABLE ENERGY EFFICIENT MORTGAGE LOANS

Federal Housing Administration (FHA) EEMs

The FHA Energy Efficient Mortgage covers upgrades for new and existing homes and is now available in all 50 states. Key features includes:

Loan limits may be exceeded
No re-qualifying
No additional down payment
No new appraisal
$4,000 or 5% of the property value (up to $8,000) may be financed

203(k) FHA Home Rehabilitation Loans

The FHA 203(k) program enables a home buyer or investor to obtain a single loan to finance both property acquisition and complete major improvements after the time of loan closing. Can be used in conjunction with the FHA EEM.

Key features include:

Loan limits may be exceeded
Total cost of improvements must exceed $5,000

Veterans Affairs (VA) EEMs

The VA Energy Efficient Mortgage is available to qualified military personnel, reservists and veterans in all 50 states for energy improvements when purchasing an existing home. Key features include:

$3,000 of upgrades may be financed based solely on documented costs
{short description of image} Up to $6,000 may be financed if upgrades are deemed cost effective

Fannie Mae and Freddie Mac EEMs

Fannie Mae secondary market guidelines permit approved lenders to increase ratios two percent on the debt-to-income requirements for Energy Efficient Mortgages. An expanded qualifying ratio helps purchasers who are “maxed-out” on their income ratios. Freddie Mac allows a lender to use the projected utility savings as a “compensating factor.”

The Value of Efficiency
Energy-efficient homes have lower energy bills. When purchasing via an energy-efficient mortgage or other green financing option, buyers often qualify for higher purchase prices.

Note: This example assumes that a new energy-efficient home will cost a bit more than a standard new home. However, increasingly, builders are able to build energy-efficient homes without charging an additional cost. In that case, the benefits of purchasing a home using an energy-efficient mortgage would be even greater.

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