Financing an Energy-Efficient Home

In addition to the benefits of energy savings, ongoing cost savings and greater comfort, homeowners who opt for energy-efficient homes can also receive financial incentives. Energy-efficient home financing can benefit those who are buying, refinancing, selling, or remodeling a home with certain energy efficiency options. Those who are shopping for an energy-efficient home may be eligible to receive an energy-efficient mortgage (EEM).

Energy-Efficient Home Financing

A common concern with home energy efficiency upgrades is the upfront costs associated with these projects. It’s not uncommon for the cost of an energy-efficient home to have slightly higher upfront costs.  As a result, some homeowners struggle or simply avoid implementing energy efficiency strategies. Homeowners have several options for energy-efficient home financing programs, such as conventional loan programs and government-insured programs. These programs are offered through several organizations and entities such as utilities, energy service companies (ESCOs), and local, state, and federal governments. If you’re considering an energy-efficient home, contact your state’s energy office to learn more information regarding potential programs that are in place specifically for the state’s residents.

Energy-efficient home financing options include, but are not limited to:

• On-bill financing
• Energy service performance contracting (ESPC)
• Property tax financing, or property assessed clean energy (PACE) financing
• Energy efficiency mortgage (EEM)

Energy-Efficient Mortgage

An energy-efficient mortgage (EEM) will take lower utility costs into account, thus allowing homeowners to afford larger mortgage payments. Energy-efficient mortgages are in place for both existing homes and new homes. This means that homeowners can use an EEM to purchase a new home or to refinance a home which will be increasingly energy-efficient after planned energy-saving remodeling improvements. A number of energy-efficient mortgage plans include both of these options in addition to home improvement loans for energy-efficient home upgrades.

Home Energy Rating System (HERS)

The Home Energy Rating System (HERS) is a nationally recognized system for determining a home’s energy performance.  The home energy rating is based on a scale from 0 to 150. The lower the score, the more energy-efficient the home is.  The U.S. Department of Energy considers a typical resale home to have a score of 130 and the average new home to have a score of 100 on the HERS Index. Therefore, a home with a HERS Index Score of 70 is 30% more energy-efficient than a typical new home.  If the score is 130, the home is considered 30% less efficient than a standard new home.  In addition to a HERS Index Score, the homeowner receives a detailed report regarding energy problems in the home as well as recommended improvements and expected return on investment. The comprehensive process is conducted by a certified RESNET Home Energy Rater.

Home energy ratings will take into account energy efficiency factors such as:

• Air leakage in the building envelope
• Window efficiency
• The effectiveness of insulation inside walls and ceilings
• Leakage from HVAC distribution ducts.

A HERS Index Score helps one understand the energy performance of a home and gain a more accurate cost of a new energy-efficient home or renovation.  It will give the homeowner a more accurate cost of operation and maintenance costs for years to come.   Although an energy-efficient home might have higher upfront costs, the ongoing savings can be recognized quickly by constructing a high-performance home or energy-efficient improvements to an existing home.