Home Energy Ratings: A Primer

How an Energy Mortgage Works

Here are examples an energy efficient mortgage and an improvement mortgage. In the first, the home buyer adds $4,000 to his mortgage loan to finance the energy upgrade of the home being purchased. The increase in the monthly mortgage payments, resulting from the financing of the energy upgrades, is more than offset by the monthly energy savings. The second example illustrates how the stretch works so a buyer can afford a more expensive, energy efficient home.

Example 1: Energy Improvement Mortgage

$75,000 VA 30-Year Mortgage at 7.5% Interest

(Source: Energy Rated Homes of Vermont, Inc.)

Monthly Costs With $4,000 in energy improvements Without energy improvements
Monthly mortgage payment $552.38 $524.42
Monthly energy expenses $90.00 $150.00
Total monthly cost $642.38 $674.42

THE BOTTOM LINE: The buyer in this example reduces his monthly housing costs by $32 --- nearly $400 a year --- and has a more comfortable and durable home, after making the energy efficiency improvements.

Example II: Energy Efficient Mortgage

2% Stretch - Increased Debt-to-Income Ratio When Buying an Energy Efficient Home

(Source: Energy Rated Homes of Alaska, Inc.)

Monthly Income Regular Mortgage Energy Efficient Mortgage Increased Purchase Power
$2,000 $62,500 $66,933 $4,433
$2,250 $70,223 $75,372 $5,149
$2,750 $83,667 $85,955 $5,578
$3,000 $93,678 $100,400 $6,722

THE BOTTOM LINE: The Buyer of an Energy Efficient Home Can Get a Bigger Mortgage Loan and More Easily Afford His Dream Home!

The institutionalization of energy mortgages into the national mortgage market and their widespread use could mean a significant improvement in the quality of our country's housing stock without a great infusion of government or utility funds. Energy improvement mortgages offer home buyers of existing homes opportunities to:

  • Upgrade the homes they are buying immediately without tapping the family's savings or taking out a higher interest, home improvement loan.
  • Own a more comfortable home that costs less to heat and cool.
  • Net a better return when selling because of the higher resale value.
  • Energy efficient mortgages offer opportunities to:
  • Help more lower and middle class American families achieve the American dream of home ownership.
  • Purchase higher quality and more affordable housing.
  • Create a market demand and value for energy efficient homes.
  • Catapult new construction standards above minimum energy codes.