Make Your House Pay

Updated September 14, 2005

When Diane Meyerhoff began looking for a house in Burlington, Vermont, she had an advantage too few buyers appreciate: she knew that the heat leaks, old boiler and out-of-date appliances of her desired fixer-upper all could be replaced using a low-interest Energy Efficient Mortgage (EEM). Along with Energy Improvement Mortgages (EIMs, to renovate a house you already own), EEMs offer a chance to energy-proof with the understanding that all money borrowed will be repaid through savings in utilities bills. "The loan allowed me to restore a century-old Cape house that had been built in stages, rented out for years and was in need of extensive work," says Diane, a community-development consultant who works at home and had learned about EEMs from a newspaper article.

After informing her bank that she wanted to include home-energy improvements in her mortgage, Diane contacted the energy-rating provider she had read about, Energy Rated Homes of Vermont (ERHV). Raters from ERHV then came to the house to see what it needed. Their recommendations included weatherizing the home by installing insulation, sealing cracks and gaps and tightening windows and purchasing a new gas boiler, water heating tank and such Energy Star appliances as a washer/dryer, refrigerator and gas stove. Richard Faesy of ERHV put out bids for contractors, helped Diane choose among them and estimated a total cost of $14,654 for contractor fees and appliances. Faesy established that although the previous tenants had paid a $2,500 annual energy bill, Diane's bill, with the proposed renovations, would drop to an estimated $1,290. Her projected annual savings would thus be higher ($1,210) than the amount added to her mortgage ($1,193 per year). When shown these numbers, Diane leapt at the opportunity. She and ERHV put in her bid to the bank, which set aside in an escrow account the cost of renovations, and Diane closed on the mortgage. The Vermont Housing Finance Agency, a nonprofit state housing finance agency and ERHV partner, provided the EEM funding to the bank.

While EEMs and EIMs have existed for twenty years and can be found nationwide, they remain unknown to most lenders and realtors. With varying conditions, they are offered by the Federal Housing Administration, the Department of Veterans Affairs, some state housing finance agencies, Freddie Mac and Fannie Mae. In essence, they allow the lender to count home energy savings as additional income. With government loans, homeowners can add to a mortgage money for improvements even if it exceeds loan limits, and all of the renovation costs can be financed. For non-government loans, some states then require an appraisal showing that the increase in the home's value equals the cost of improvement. To find a lender, talk to your local bank or consult the resources below.

Once the loan is approved, homeowners usually are given 90 to 180 days to complete the improvements. In Diane's case, once the bank was satisfied and the mortgage finalized, the contractors completed the job in three months of work, which was inspected afterward by EHRV. Once approved, the money was released from escrow and the contractors were paid (EHRV also received their $475 fee). According to Diane, EHRV's presence throughout the process "was sort of like having a husband without being married."

Two years down the road, the results are better than expected: Diane's energy bills have averaged $914 per year, some $376 less than the original estimate. "And, on top of my savings, I have a much more comfortable space to live and work in," Diane says.

Resources:

To locate a home-energy rater or EEM lender in your area, call the Residential Energy Services Network, 760-806-3448, or search their directories at www.natresnet.org.

For more information about EEMs:

U.S. Department of Housing's Energy Efficient Mortgage Home Owner Guide

No Regrets Remodeling, by the editors of Home Energy Magazine (Energy Auditor and Retrofitter, Inc., 1997, $19.95).

"Financing: The Key to Unlocking Residential Energy Efficiency," by Steve Baden, http://www.homeenergy.org/ consumerinfo/finance/financing4.html.