Did you know that paying attention to energy-efficiency can help you purchase a better, more comfortable home for less money?
Let me explain. When you are considering a home, your agent or mortgage broker will give you an idea of the monthly payment you can expect. The payment is broken down into principal, interest, taxes and insurance or P.I.T.I. But unless you don’t plan to turn on your lights, take a shower or run your heat, you need to remember that the monthly cost is really the P.I.T.I. + U. The U stands for utilities and the efficiency of your home could make the difference between spending several hundred dollars a year on them, or several thousand dollars a year.
Fortunately, the government really wants homeowners to live in energy efficient homes so they created EEM’s, short for Energy Efficient Mortgages, to encourage buyers to purchase efficient homes or improve existing ones. EEM’s work two different ways depending on if you are buying an existing home, that you want to make energy-efficient, or a home that is already energy-efficient.
If the home already meets the 2000 IECC standard then your payment-to-income ratio can be stretched by up to 2 percent, from 31 to 33 percent, and your debt-to-income ratio stretched from 43 to 45 percent. The theory of the stretch is that the improved efficiency of these homes will reduce the monthly utility costs by enough to cover the increase in the mortgage created by the ratio stretch.
If it’s an older home then EEM’s can be used to finance home efficiency improvements using the similar logic, the improvement costs that will be rolled into the mortgage will be offset by the decrease in you utility bills. The process is a bit more complicated so be sure that you state it is something you want right up front, and it’s best to have a real estate agent who understands the steps to make an EEM work.
When you find the home you want, a qualified HERS (Home Energy Rating System) energy rater will test and inspect the property in its current condition. This needs to be done as early in the process as possible, usually within your 10 -15 day inspection period after you have made an offer. The rater will submit a written report that includes a list of recommended energy improvements, estimated costs and energy savings that will be achieved by making those improvements. If the estimated cost of these improvements, as related to the increase in your mortgage payment once they are rolled in, are less than or equal to the estimated energy savings then the EEM will be approved. This is an important point; all energy upgrades must be cost-effective in order to be eligible. EEM’s will allow up to 5% of the purchase to be used for energy-efficient upgrades. The money will be set aside in an escrow account and after closing the buyer will have 90 days to have the work completed, at which time the rater will conduct a final inspection and the contractors paid. Any left over money will be applied to the buyer’s loan.
The goal of the EEM for both new and old homes is that the P.I.T.I. + U for an efficient home will be the same, or less, as the P.I.T.I. + U for an inefficient one, you will simply be paying different proportions of you monthly costs to different places, utilities vs. P.I.T.I.
Now you may be saying, So What! If the cost is going to be almost the same, why should I bother upgrading my home to be more efficient? There are three big reasons, Comfort, Durability and the Environment.
First, if you have ever lived in an older Pittsburgh home in the winter you know that eventually you are going to do have to something about the cold and drafts. You’ll either decide to wear your ski clothes indoors, huddle by the space heater or crank the thermostat and deal with a monster heating bill. Maybe this is ok with you, but when the option to have a more comfortable home is available for no additional cost, or maybe even a bit less, wouldn’t you want to choose that instead?
Second, sealing and insulating a home keeps out moisture, bugs, dirt and other nasty things that take a toll on what may be your biggest investment.
Finally, it’s better for the environment. Our buildings produce 40% of the greenhouse gases in the atmosphere each year. Plus, using less energy reduces our dependence on fossil fuels. When you consider that this is an improvement that can be accomplished while still putting money back into your wallet, it seems like a no-brainer.
Even though EEM’s have been around since the 70’s a lot of people haven’t heard of them. In 2008, 78% of homeowners said no one mentioned energy efficiency during their purchase process, even though 90% of buyers now say that energy efficient features are important. So, while many people think that the only way to get an energy efficient home is to buy a new one. The truth is that EEM’s are a great tool for making any home more efficient, better for the planet and better for your pocketbook too.
Want to find out more about how an EEM can help you get the perfect energy-efficient home? Call Christa Ross from RE/MAX Select Realty, your certified green agent and RE/MAX green specialist at 724-933-6300 x214 or visit my website at www.greenhomespgh.com.
Buying or Selling a home in Pittsburgh? Call Christa Ross from RE/MAX Select Realty, at 724-933-6300 x214 (office) or 724-309-1758 (direct) or visit my website at www.bestpittsburghhomes.com.