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Financing for Energy-Efficient, Net-Zero Homes

By on 6/10/2016

Recent articles look at the issue some home builders of energy-efficicient, net-zero home's face.  As an ICF manufacturer working directly with home builders we've seen this issue before.  The good news is that more education is being done for lenders and accessors.  If you're interested in building an ICF construction project and run into lenders turning down your financing, don't give up.  First, call us and we'll be happy to educate your lender, second, if you get a "no" do like one of our customer's did and move on to another lender.  (To hear more from that particular customer, listen to our podcast.) 

It's tough to get financing for energy-efficient homes

If you're building a home that's so energy-efficient that your utility bills will be minimal or nonexistent, your lender should take that into consideration when deciding how much you can afford to borrow, right? Not so fast. Net zero homes, also known as zero energy homes, offer financial and environmental advantages to buyers, but not all lenders and appraisers recognize the impact of higher levels of energy efficiency on a homeowner's bottom line.


Building costs for net zero homes Net zero homes, which produce as much energy as they use through the use of extra insulation, geothermal heating and cooling, solar panels and passive solar design, often cost more initially to build than standard new homes but save money on utility bills in the long run.

"A case study on one of our net zero homes estimated that the homeowners would save as much as $200,000 in energy costs over 25 years because of the high performance features," says Kiere DeGrandchamp, founder and president of High Performance Homes in Gettysburg, Pennsylvania.

Most net zero homes today are custom-designed or semi-custom homes, although proponents of these homes are working on making them more affordable and more widely available.

The government of California has established a goal of having every new home in the state meet net zero standards by 2020. One element of that plan is to establish a systematic way for appraisers and lenders to value these net zero homes for financing purposes by 2017.

Appraisals and net zero homes
One issue with net zero homes is that appraisers must compare apples to apples when determining home valuations and in many markets there are not many net zero homes, says Sandra Adomatis, principal with Adomatis Appraisal Services in Punta Gorda, Florida, and author of "Residential Green Valuation Tools."

"Only a small number of appraisers have been trained in green building and even though appraisers are supposed to have a requisite knowledge of the property type they are appraising, no one is really watching over that," Adomatis says. "It's the duty of the lenders to find appraisers who are competent in green building and particularly about zero energy homes."

Builders of energy-efficient homes usually supply appraisers with a list of the cost and benefits of green features and will educate appraisers about the homes so they understand the added value, says Michael Johnston, vice president and branch manager of Howard Bank in Timonium, Maryland.

Adomatis says that net zero homes are not always marketed in the multiple listing service (MLS) as energy-efficient homes, making them harder to find for appraisers.

"We did a study of high-performance homes in Washington, D.C., that we released last year that found that those homes were valued 2% to 5% higher than standard homes, but we were limited by the small number of homes that were actually listed as high performance homes," Adomatis says.

A higher appraisal could help borrowers by reducing their loan-to-value ratio, which could mean a lower interest rate or even the elimination of private mortgage insurance, which is required on loans with a down payment of less than 20%.

Loans for energy-efficient homes
Some community banks and individual lenders who are aware of the potential savings of net zero homes take that into consideration when looking at the debt-to-income ratio of borrowers. In addition, borrowers can ask whether an Energy Efficient Mortgage (EEM), available as conventional, FHA or VA loans, can be used to finance the home.

"Energy-efficient mortgages are a highly underutilized loan program that allow lenders to adjust the debt-to-income ratio or raise a borrower's income level to reflect that they will be paying lower utility bills," says Laura Williamson, senior vice president of Digital Risk, an independent provider of risk management and valuations for the financial services market. "For example, Fannie Mae allows lenders to adjust the debt-to-income ratio by 2% for borrowers who might otherwise not qualify for the loan because of their income."

While energy-efficient mortgages are often used to pay for improvements to existing homes, they are also available on new homes with energy-efficient components. The loans require a cost-benefit analysis including a report to prove that the savings on utility costs outweigh the initial expense of including energy-efficient features.

Most net zero homes are relatively costly custom homes, says Johnston, with buyers who have little trouble qualifying for a loan.

"As a community bank, we can take into consideration the lack of utility bills when we underwrite loans and let borrowers go to a higher debt-to-income ratio if necessary," Johnston says, "but we mostly do that on loans for people who are building a new home before selling their current home and need to finance both for a little while."

A coalition of builders, real estate professionals and environmental protection organizations support the Sensible Accounting to Value Energy ( SAVE ) Act, introduced in Congress in 2013, but not yet passed. The bill is meant to establish new underwriting guidelines to make it easier for lenders to account for savings associated with energy-efficient features so that buyers can been approved for a larger loan or a lower interest rate.

For now, buyers of net zero homes are advised to work with a lender experienced with financing these homes and to make sure the lender and appraiser are aware of their home's features.


Link to original article:


New Group Calls For Larger Mortgages For Energy Efficient Homes

Larger mortgages should be allowed for more energy efficient homes, says a new project.

The group is called LENDERS and is comprised of green energy groups and sustainable bodies, building industry experts and mortgage lenders.

It is now trying to show that if mortgage lending decisions consider more accurate estimates of fuel costs, then this may lead to lower energy consuming homes being responsibly afforded larger mortgages.

The Nationwide Building Society chairs the group which is now examining ways of moving on from the way energy costs are currently estimated in the mortgage lending process, which the group believes will help more responsible borrowing.

LENDERS is in the process of gathering data in order to present more accurate energy cost affordability and information that will feed into the process of mortgage lending.

The group say that the scheme will help in supporting more responsible lending. In addition it means that because of their lower fuel bills, more energy efficient homes will also have lower costs in other areas.

As a result these home owners will therefore be able to repay an increased rate of mortgage repayment instalments without the fear of their overall outgoings increasing.

The group believes that this will in turn lead to the capacity to deliver high capital lending amounts.

It is hoped that by making larger mortgages available for more energy efficient homes, this will stimulate consumer awareness of the benefits of greener homes and in the long term it is hoped that this demand will contribute to driving the housing market.

This in turn will increase the value of more energy efficient homes.

The group also say it would encourage more home owners to put more money into improving energy efficient building solutions.

LENDERS also believe that this will be useful for re-mortgages to conduct projects relating to energy refurbishment.


Link to original article:


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