Q–We’re thinking of moving from an apartment to a home, and like many people, our money is tight. We understand that buying an energy-efficient home will save us money–once we’re in.
We’ve also heard about mortgages that are geared towards energy-efficient homes. What can you tell me about them?
via e-mail
A–First, congratulations on setting energy efficiency as one of your home-buying goals. Few people realize the value of saving energy dollars each month and the rather large sums of money one can save over the time they own a home.
Yes, there is a program aimed at encouraging people to buy energy-efficient homes, and we’ll explain it with some help from John Marley, an administrator with the EnergyWise Homes of Illinois program, which is overseen by the Illinois Department of Commerce and Community Affairs. The program, which involves what’s known as Energy Efficient Mortgages (EEMs), has numerous benefits.
For the planet, natural resources are conserved and pollution is reduced because less fossil fuel is consumed.
For the home buyer, energy bills are lower, the home is more comfortable and you can qualify to purchase more home, says Marley.
Here’s how it works.
EEMs allow a potential buyer to stretch the debt-to-income ratio in getting a mortgage from participating lenders. With a traditional mortgage, borrowers are permitted to spend 28 percent of their gross income on their mortgage payments (principal, interest, taxes and insurance combined).
For example, if your family’s gross income is $50,000 a year, your housing payments for the year should total no more than $14,000 (or about $1,167 a month).
Lenders who offer EEMs, however, realize that many homeowners spend as much as 14 percent of their household budgets on utility costs. With an energy-efficient home, those costs should be much lower. So if a home is rated as energy-efficient, those lenders will allow a homeowner to transform those utility savings into a bigger mortgage payment.
“In other words, you can stretch that debt-to-income ratio to the max–by adding 2 to 5 percent on top of the 28 percent,” says Marley.
In addition to being able to buy more home, here’s another wonderful benefit to the EEM program: whatever most people invest in house payments eventually comes back to them (when they sell the home), often with a substantial profit.
Whatever money you spend on energy bills is gone forever.
How does a home qualify for the program?
It is evaluated by the EnergyWise Homes of Illinois Home Energy Rating System (HERS), which produces an energy-efficiency rating for the home. This rating may require looking at blueprints for new homes, inspecting an existing residence or conducting a number of tests, such as a blower door test that determines how much warmed air or air-conditioned air escapes from a home.
If a home doesn’t receive an appropriate rating (and most new homes do), a home seeker can (1) try to convince the seller to make necessary improvements (such as installing a new furnace or insulation), (2) opt to look for another home that would qualify, or (3) buy the house and make the improvements by taking on what’s known as a purchase rehab loan that incorporates the EEM features. This last alternative allows the buyer to stack as much as $8,000 on top of the primary loan to make the improvements needed to make the home energy efficient.
As with any type of mortgage, of course, there are limitations to EEMs. To find out more information, check out the EnergyWise Homes of Illinois program Web page at http://user.mc.net/%7Eenergy/index.htm. You can also call toll free to 877-818-7127.
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Got a question about home energy or home environmental issues? Write to Energy Q&A, Chicago Tribune, Your Place section, 435 N. Michigan Ave., 4th Floor, Chicago, Ill. 60611. Or you can e-mail energy qa@aol.com. Questions will be answered only through the column.
