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What Is a Green Mortgage?
Green mortgage and energy efficient mortgage program overview
Residential Energy Services Network (RESNET) serves as a voice for the entire home energy rating industry. Their website provides information about the energy efficient housing industry from both the consumer and builder perspectives.
RESNET provides information about energy efficient mortgages -- which could be considered a "green mortgage": an Energy mortgage credits a home's energy efficiency in the home loan. There are two types of energy mortgages:
A 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.
Fannie Mae, Freddie Mac, FHA and VA have adopted special underwriting guidelines to make financing energy efficiency less burdensome.
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
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!
Local Example of a Green Mortgage Pilot Program
The Colorado Partnership Office developed a "Green Mortgage" pilot in 1999 with the Colorado Association of Home Builders and Built Green of Colorado.
Elements of the program included:
- Borrowers of all income levels can qualify;
- Borrowers get "more" house while reducing monthly expenses;
- Designed to combine with existing Fannie Mae mortgage products;
- Includes new and existing one-to four-family properties;
- Available for purchase or refinance;
- Includes properties that are energy-efficient in their current state as well as properties that need energy improvements added after closing;
- Home energy rating or evaluation through a prescriptive program that evaluates energy-efficiency and estimates the resulting cost savings for the consumer;
- New construction homes must meet the minimum standards for rating methods and prescriptive programs;
- Existing homes adding energy improvements must be cost effective where the energy savings exceeds the cost of improvements;
- The appraised value is obtained by using the sales comparison approach plus the lower of the present value of the expected energy savings, or the actual cost of the energy improvements; and
- When qualifying the borrower, the expected monthly savings are deducted from the PITI thus allowing the borrower to qualify for a bigger mortgage.
Affordable Green Mortgage
Other concepts include an 'Affordable Green' mortgage product which would allow consumers to put less money down of their own funds. The balance of down payment may come from other sources like an approved community seconds program or an employer assisted housing program or a gift from a family member or sources like rebates from manufacturers.
Guaranteed Resource & Energy Efficient Mortgage Program
A three to ten year Guaranteed Resource & Energy Efficient program would provide benefits such as:
- builder distinction and name branding;
- lender distinction;
- home product distinction;
- homebuyer resale value;
- preferential mortgage product;
- preferential builder warranty.
The structure of such a program could include:
- An annualized guarantee of three to ten years would include:
1. Energy savings - based on existing industry programs
2. Water savings - based on empirical average local use
3. Maintenance - based on industry annualized data.
- Collaborative guarantee backed by industry members;
- Offered by and for builder participants only;
- Established escrow protection accounts with contributions from:
1. Product Manufacturers
2. Utility Providers
3. Non-governmental Organizations
4. Government Agencies
5. Product Suppliers
- Builder Quality Training programs offered through nonprofits or colleges.
RESOURCE: The RESNET BLOG provides up-to-date information about Energy Financing, etc.
Edited by Carolyn Allen, owner/editor of California Green Solutions