Eco-friendly homes are a relatively recent trend, but the groundwork for financing them has been around for some time. As far back as 1979, Jimmy Carter signed an executive order directing secondary mortgage companies to provide incentives to green buyers. Considering eco-friendly homes were in their infancy back then, these incentives were sparsely utilized – but that isn’t the case nowadays.
The Idea behind Energy-Efficient Financing
The main thrust of financing for eco-friendly homes is the simple fact that they are more energy-efficient than conventional homes. Because of this energy efficiency, utility bills will be lower – and the difference can be counted as income and go towards applying for a larger loan.
In some cases rather than allowing a larger loan to be taken out, lenders will provide different incentives – such as lower interest rates, or a certain amount of credit. The same basic idea applies however, and underpins the workings of the system.
As you may have noticed, the caveat for this kind of financing is that other eco-friendly aspects don’t really affect the financing – only improvements that make the home more energy efficient do. Considering modern eco-friendly homes tend to encompass a wide range of other eco-friendly products that are not energy-related, it doesn’t fully cater to the current situation.
How to Qualify
While individual lenders utilize different criteria, most energy-efficient mortgages require a Home Energy Rating System (HERS) report in order to qualify. The report will measure and quantify your home’s energy efficiency and rate it on a scale of 0 to 100 (0 being not energy efficient, and 100 being fully energy efficient).
Not only will the report provide a rating for your home, but it will also then go on to list potential improvements that could boost its energy-efficiency. Most lenders will scrutinize that list, and some may only take into account improvements that are on it.
Aside from the HERS report, another commonly used qualifier is the Energy Star rating. Often this is used more directly, and some lenders have mortgage programs that offer incentives to buyers who are purchasing homes that meet Energy Star requirements or utilize its appliances. It isn’t unheard of for incentives to even be offered to buyers who drive hybrid or electric cars.
Keep in mind that these incentives don’t exempt you from the standard scrutiny that comes with any loan application. To qualify you’ll undoubtedly need to have a good credit rating, and may want to look to loan consolidation if you have any issues on that front.
All said and done there can be quite a bit of difference between the various eco-friendly mortgages that are out there – which is why you’ll have to research the options that are available and decide which works best. As a rule of thumb if you intend to carry out energy-efficient improvements then opting for an energy-efficient mortgage from Fannie Mae or the Federal Housing Administration may be best. On the other hand if you’re buying an existing eco-friendly home then you should look for lenders and state programs that may offer incentives based on your circumstances.
Article Submitted By Community Writer