Get Cheap Loans for Energy-Efficient House Projects

Home with solar panels
Photo by anweber / Shutterstock.com

Here’s encouragement if you’re thinking of making energy-efficiency upgrades to a home you own or are buying. Mortgage investor Fannie Mae’s new HomeStyle Energy mortgage loan lets borrowers qualify for a bigger loan than they otherwise would so they can cover the cost of certain energy-saving improvements.

If you are buying a home or refinancing one you can add enough to your mortgage to cover the cost of energy-efficient replacement windows or solar panels, for instance, folding the financing into your home loan. Other eligible projects include adding insulation, installing water-efficient toilets or showers, replacing an older HVAC system or hot water heater, and air-sealing and caulking.

Get a bigger loan

“In recognition of the value being added to the property by cutting utility bills for the long term, participating lenders will let you borrow more than on a standard mortgage,” writes real estate columnist Kenneth R. Harney, in The Washington Post.

Says RealtorMag, published by the National Association of Realtors:

… the upgrades that can cut utility bills by the greatest amount are also the priciest. Solar water heating systems can cost between $1,500 to $3,500 and ­solar panels can cost $15,000, but when used together, they can drop electricity bills to practically nil.

Lenders typically tie the size of a home loan tightly to market values in the surrounding neighborhood. This program lets the loan size grow to include qualified projects. Because interest rates are lower on a first mortgage than on a home-equity loan, line of credit, second mortgage or other loan, financing them this way lowers the cost of borrowing for the projects.

A streamlined version for basics

For bigger loans, borrowers will need an energy report to demonstrate that the improvements will be cost-effective. However, a streamlined version of the HomeStyle Energy mortgage is available for certain basic projects costing $3,500 or less. The HomeStyle Energy mortgage FAQ explains: “An energy report is not required for basic weatherization and water-efficiency improvements up to $3,500 because studies have shown that they are cost-effective energy improvements.”

Basic weatherization jobs that are eligible for the $3,500 streamlined approach include:

  • Air sealing: Sealing ducts, weather-stripping doors and caulking windows and plumbing.
  • Insulation: Beefing up insulation in attic, floors, walls and basements.
  • Windows and doors: Efficient and weather-tight windows and doors qualify for purchase and financing under the $3,500 no-assessment limit.
  • Controls: Smart thermostats and other controls are eligible.

Larger projects

More-ambitious projects can qualify for more funds — up to 15 percent of what the home’s appraised value is estimated to be after the work is complete. These projects require an energy report to show that the improvements, at least when considered all together, are worth the investment. “Not every energy improvement is required to meet the test for cost-effectiveness, provided that all of the proposed improvements together meet the test for cost-effectiveness,” according to the FAQ.

Also, HomeStyle Energy loans can be used to pay off higher-interest debt you’ve used to make energy improvements. Writes Harney:

HomeStyle Energy loans can also be used to pay off existing energy-related debts, such as credit card balances, home equity credit lines and PACE (Property Assessed Clean Energy) liens, which are popular in some parts of the country and are tied to local property tax assessments.

Homes with one to four units qualify, but manufactured homes are not eligible to participate.

Pay to save

When it comes to energy efficiency, it costs money to save money, but buyers get that.

A study out of the Lawrence Berkeley National Laboratory, “Selling Into the Sun: Price Premium Analysis of a Multi-State Dataset of Solar Homes,” found that buyers paid up to $15,000 more for a home with an “average-sized” photo-voltaic solar panel system. The research was funded by the U.S. Department of Energy and examined home sales in eight states from 2011 to 2013.

Home buyers are demanding energy efficiency and certain green products. RealtorMag says buyers particularly prize:

  • High-efficiency insulation
  • High-efficiency windows
  • Double- and triple-glazed windows
  • Tankless water heaters
  • Water-conserving devices
  • Products aimed at improving indoor air quality
  • Renewable flooring products, such as bamboo and cork

Value added

Investments in improvements that save on utility bills resonate with home buyers, and they are willing to pay for these upgrades. According to survey research by the National Association of Home Builders:

[H]ome buyers are willing to pay more for a home if they can get lower utility costs in return. On average, they will pay an additional $10,732 up front to save $1,000 a year in utilities.

Other energy-efficient mortgages

The Fannie Mae program has the backing of the federal government. HomeStyle Energy is just the most recent energy-efficient mortgage (EEM) product to be offered. The Federal Housing Administration and Department of Veterans Affairs also have them, as does Freddie Mac, another big mortgage investment company. ResNet, the Residential Energy Services Network, has details about these products. The government supports them by insuring the loans against losses to investors.

Harney, the Washington Post writer, urges borrowers also to consider the energy-efficient mortgages offered by Freddie Mac. Those, he says:

… have some key advantages over Fannie’s program: There is no cap on the percentage of as-completed appraised value that can go for energy improvements. There is no mandatory residential home energy report. And Freddie’s maximum debt-to-income limit for borrowers is 45 percent, vs. Fannie’s 38 percent.

You should not have to become an expert on energy-efficient borrowing if you want one of these loans. That’s a lender’s job. Or a mortgage broker’s.

Our advice: Interview a number of these mortgage specialists and keep going until you find one who knows these programs inside out and can steer you through the requirements and find the best deal for you.

What energy-efficient projects have you undertaken in your home? How have you paid for them? Share with us in comments below or on our Facebook page.

How to find cheaper car insurance in minutes

Getting a better deal on car insurance doesn't have to be hard. You can have The Zebra, an insurance comparison site compare quotes in just a few minutes and find you the best rates. Consumers save an average of $368 per year, according to the site, so if you're ready to secure your new rate, get started now.

Read Next
This Grocery Store Is Cheaper Than Even Walmart
This Grocery Store Is Cheaper Than Even Walmart

One grocery chain is likely to save you more money than any other.

15 Purchases That Make Life Easier As You Age
15 Purchases That Make Life Easier As You Age

There are many products that can make getting older — or any time of life — a little easier.

10 Products That Upgrade Your Home for Less Than $45
10 Products That Upgrade Your Home for Less Than $45

Make a fresh start with these affordable Amazon buys.

7 Surprising Benefits of Staying in Shape After Age 50
7 Surprising Benefits of Staying in Shape After Age 50

Improving your overall physical health is just one reason to stay fit as you age.

Never Buy These 12 Things at a Thrift Store
Never Buy These 12 Things at a Thrift Store

Sometimes a great deal is not worth it — or, even worse, is dangerous.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
This Gas Station Scam Is Victimizing More Drivers
This Gas Station Scam Is Victimizing More Drivers

For the second straight year, a growing number of Americans believe they’ve fallen prey to this scam.

This Is the Most Popular Age for Claiming Social Security
This Is the Most Popular Age for Claiming Social Security

Both men and women are most likely to start receiving Social Security benefits at this age.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

Could You Give Up These 7 Expenses to Save Thousands of Dollars a Year?
Could You Give Up These 7 Expenses to Save Thousands of Dollars a Year?

You could save more than $30,000 by setting aside these costly expenses for just one year.

The 15 Worst States for Retirees in 2020
The 15 Worst States for Retirees in 2020

Based on dozens of metrics tied to affordability, quality of life and health care, these are not ideal places to spend retirement.

6 Things You Should Never Buy at Trader Joe’s
6 Things You Should Never Buy at Trader Joe’s

We love Trader Joe’s for plenty of reasons. But think twice about this handful of products.

Don’t Toss These 7 Household Items — Sell Them
Don’t Toss These 7 Household Items — Sell Them

Here’s how to earn cash as you give new life to these unwanted items.

6 Legal Documents Retirees Need — but Don’t Have
6 Legal Documents Retirees Need — but Don’t Have

Few retirees have these documents that are crucial to their golden years — especially during a pandemic.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

7 Unusual Ways to Declutter Your Home
7 Unusual Ways to Declutter Your Home

Tired of possessions weighing you down? Here are seven ways to declutter painlessly and effectively.

11 Expenses That Quietly Drain Your Wallet
11 Expenses That Quietly Drain Your Wallet

It’s scandalously easy to overspend in these areas of your life.

9 Dumb Ways You Are Ruining Your Home Value
9 Dumb Ways You Are Ruining Your Home Value

Homeowners, beware these mistakes that can drive away potential buyers.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

10 Things That Really Are Free on Amazon
10 Things That Really Are Free on Amazon

These freebies are available to anyone — no Prime membership necessary.

This Is the Cheapest Place to Buy a Used Car
This Is the Cheapest Place to Buy a Used Car

Looking for a good deal on a set of wheels? This should be your first stop.

7 Tips for Building an Emergency Stockpile
7 Tips for Building an Emergency Stockpile

A pandemic or natural disaster could leave you reliant on your existing food supply. Is your pantry prepared?

11 Disgusting Household Items You Should Toss Already
11 Disgusting Household Items You Should Toss Already

Never keep these items past their prime.

18 Amazon Purchases That We Are Loving Right Now
18 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

10 Surprising Foods You Can Freeze — and How I Freeze Them
10 Surprising Foods You Can Freeze — and How I Freeze Them

How many of the foods have you thought to put in the freezer?

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.