Think Green With Green Mortgage Lending
There is so much focus within the last decade regarding the importance of safeguarding the environment. As a result, the workplace, social settings and even homes have examined and implemented new technology and standards to help everyone think “green.” And believe it or not so has the mortgage industry. Technically termed an “energy-efficient mortgage (EEM),” it is more colloquially known as a “green” mortgage.
What is Green Mortgage Lending?
These types of mortgages are still relatively unknown among homeowners. But they are not new by any means. It could be due to lack of information or just simple lack of advertising, but the Federal Housing Administration started green mortgages in 1995 – so they’ve definitely been around.
Green mortgage lending is a great way to improve one’s home, finances (through tax credits), and it might just have a positive effect on one’s health (as it lessens our collective carbon footprint and helps to make our communities more sustainable.) Unfortunately, according to industry reports, less than one percent of all mortgages are green mortgages. But with a down economy and the increased focus on improving the environment (which can also create a cost savings) – environmentalists and industry stakeholders alike are hoping that green mortgage lending increases in popularity – as it’s a win-win for everyone.
What is Covered by Green Mortgage Lending?
A green mortgage is a loan that a homeowner takes out to improve the energy efficiency of their homes. Proceeds from these loans can be used to purchase upgrades such as double-paned windows, geothermal water heaters, modern HVAC systems, radiant heat barriers, and improved insulation. In fact, even the installation of solar roof panels can be financed through green mortgage lending.
An energy-efficient home benefits from lower maintenance costs and additional savings on energy costs. This gives the homeowner additional cash derived from lower utility bills. This extra cash can be used for other housing expenses.
What is a HERS Report?
Filing for a green mortgage lending is a positive option, considering the rising costs of fuel and maintenance. However, one of the requirements of this type of mortgage is a Home Energy Rating System Report (HERS), written by a licensed Energy rater.
The HERS report evaluates an individual’s home energy efficiency. A licensed Energy Rater, either hired by the buyer, seller, or mortgage lender, inspects the home and factors in such things as insulation, appliances, window types, local climate, and utility rates to create a report that covers the following components:
- Overall Rating Index (ORI) of the house.
- Recommended energy-efficiency upgrades.
- Cost estimates, projected annual savings and life expectancy of upgrades.
- Improved Rating Index (IRI) after the upgrades.
- An estimate of the annual total energy cost of the home before and after the upgrades.
The HERS report will also include how much money can be spent in upgrading the energy efficiency of a property.