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Green Mortgage Lenders and Energy Efficient Mortgages

written by: Steve Graham•edited by: Niki Fears•updated: 3/1/2010

The mortgage industry is not immune to the eco-conscious mania sweeping the world. Here's how you can benefit from energy-efficient mortgages and green mortgage brokers.

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    Your mortgage costs plenty of greenbacks, but how about making it greener in the environmental sense?

    Green mortgage loan firms are opening everywhere, focusing on sustainable business practices, as well as finding eco-friendly financing options. The business practices alone are worth giving them your business, or at least consulting with a green mortgage lender in finding your best mortgage.

    Green mortgage businesses typically buy wind credits or other renewable energy choices, create minimal waste, work with as little paper as possible and may be certified as carbon neutral. That will all offer peace of mind and help you feel better about giving them your business, but what about the actual mortgages.

    A green mortgage lender also should be an expert in Energy Efficient Mortgages. This specific type of green mortgage is a federal program created in 1979 during the Carter administration (like the solar thermal panels on the White House, but thankfully Reagan didn’t dismantle this program). It is administered by the Department of Housing and Urban Development.

    The idea of the green mortgage is to take the money that you saved by making energy improvements and putting it work for your home loan. When you install solar panels, for example, you would not only save money on your energy bills but you would then have more money available for a pricier home and a larger loan.

    How does it work? The process begins with a Home Energy Ratings system report. The HERS report grades the home, kind of like the Environmental Protection Agency’s mileage ratings for cars.

    By analyzing insulation, appliances, local climate, and utility rates and more, an efficiency expert can calculate projected energy costs and rate the home.

    This initial rating is then recalculated based on potential savings realized through a set of energy-efficiency upgrades. A seller can make these upgrades, improve the HERS score and drop the home’s utility costs. That will make the home more attractive, likely prompting a faster sale.

    The other option is for the buyer to order the HERS report and take advantage of the savings through the green mortgage. Let’s talk actual dollars.

    Say you look at a house worth $150,000. You order a HERS report that recommends about $5,000 in home improvements. In an example on the Department of Housing and Urban Development Web site, the green mortgage on the $155,000 home would cost $1,023 per month, $32 less than the standard monthly mortgage on the $150,000 price tag. However, the energy efficiency upgrades are already paid for, and energy bills would drop by $93 per month after the energy improvements. The homeowner nets a savings of $61 per month.

    Pretty much anybody who qualifies for a home loan can qualify for an energy efficient mortgage. They can also be used on nearly any kind of new or old home. Consult a green mortgage broker for more details on the program.