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April 22nd, 2011

Earth Day: Go green with your next mortgage or home repair

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solar panelsIf you live in the North East, this past winter’s snowfall and the cool spring temperatures might have you challenging the claims of global warming. But whatever your opinions are on climate change, most of us can agree that protecting the planet today is crucial to preserving it for future generations.

On no day is that concept more celebrated than today, Earth Day.

Nowadays, being environmentally savvy can be relatively simple — you can purchase reusable bags for the grocery store, install CFL bulbs in your home and recycle. Some take it a step further by purchasing environmentally-friendly vehicles and/or making energy-efficient improvements to their homes.

But taking it a step further isn’t exactly cheap. Hybrid cars tend to cost more than their non-hybrid counterparts, and at a time when our economy is struggling and home values have plummeted, homeowners are looking to cut costs rather than add them.

That said, energy-efficient home experts will be the first to tell you that going green is a quick and easy way to save some green. “For every dollar of energy savings that the home can gain, it would increase the value of the house by $20,” Matt Grocoff, host of GreenovationTV and the owner of Michigan’s first net-zero energy home, says. “Therefore, if you were to save $1,000 per year, that would increase the value of your home by $20,000. Savings on energy costs will only go up in value.”

What are my options?

Whether you’re buying a newer home that’s already energy-efficient, an older home in which you plan to make these improvements yourself, or you already own a home and wish to finance green improvements, you have options:

[Energy Efficient mortgages] EEMs are typically used to purchase a new home that is already energy efficient such as an ENERGY STAR qualified home. The term EEM is commonly used to refer to all types of energy mortgages including Energy Improvement Mortgages (EIMs), which are used to purchase existing homes that will have energy efficiency improvements made to them. EIMs allow borrowers to include the cost of energy-efficiency improvements to an existing home in the mortgage without increasing the down payment. EIMs allow the borrower to use the money saved in utility bills to finance energy improvements. Both EEMs and EIMs typically require a home energy rating to provide the lender with the estimated monthly energy savings and the value of the energy efficiency measures — known as the Energy Savings Value. EEMs (and EIMs) are sponsored by federally insured mortgage programs (FHA and VA) and the conventional secondary mortgage market (Fannie Mae and Freddie Mac). Lenders can offer conventional EEMs, FHA EEMs, or VA EEMs.

Industry is getting greener

While the mortgage and real estate industry is swiftly expanding their green products and services, there’s still room for expansion and improvement. One facet of the industry, appraisals, which was once lagging behind, is starting to make some strides:

Many who improve their homes with energy-efficient products do so with high hopes of return, only to find that their appraisals are disappointingly low. The reason is inadequate appraiser training. Matt Grocoff, host of GreenovationTV and the owner of Michigan’s first net-zero energy home, has his own story about green appraisals gone bad.

“When we went to refinance after we had done much of the energy-efficient retrofit work, the appraiser came in with an old checklist. He checked that we had an air conditioner and heater, but the geo-thermal unit was what he was actually looking at,” Grocoff says. “Our house was appraised for well under the actual value of what it should have been, because the appraiser didn’t have the facts, nor the training. He didn’t even know what a geothermal unit was!”

This discouraging situation is happening more often as homeowners across the nation embrace green products for their homes. However, the problem is now being tackled with the development of standard guidelines for green appraisals. The Earth Advantage Institute offers a Certified Residential Green Appraiser course, and reaches out to brokers as well with the Sustainability Training for Accredited Real Estate Professionals (STAR) program.

To learn more about energy-efficient home loans and programs, be sure to check out these other articles from HSH.com:

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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