Chicagoan Charles Heppner has long wanted to renovate a home using green technology. So in the fall, he and his brother, Timothy, launched an effort to turn their newly acquired, century-old house on the Far Southeast Side of Chicago into a model of energy efficiency.
The Heppner brothers will use a geothermal pump that circulates air from deep within the earth to help heat and cool the wood-frame house. The insulation they plan to install will be mineral wool, because it’s more efficient than fiberglass. Solar energy will power the three-bedroom home’s low-voltage electronics, such as computers and stereos. So-called gray water recycled from laundry, showers and baths will be used to irrigate the gardens. And windows will not only use energy-efficient thermal glass but will be repositioned on the home’s south side to take fullest advantage of the sun’s rays.
Heppner is one of the Chicago homeowners availing themselves of a 6-month-old initiative called the Homeowners’ Energy Conservation Program. Sponsored by Chicago’s ShoreBank, the Northern Illinois Energy Project and the Illinois Clean Energy Community Foundation, the program provides a free home improvement and energy-efficiency consultation and folds the cost of improvements into a mortgage or refinancing loan.
Making improvements that save on energy–whether it’s investing in a more efficient furnace, insulating the attic or replacing old single-pane windows with double thermopanes–is a balancing act. Homeowners must weigh the expense of an Energy Star refrigerator or upgraded insulation against the long-term savings it should bring. However, getting a financial break, such as tax credits or better mortgage rates, can make shelling out money for such improvements a little easier.
Why the incentives? Studies have shown houses that undergo energy-efficient home improvements increase in value, according to Michelle Collins, managing director of ShoreBank’s mortgage lending department. Add to that the savings that can be reaped in heating and cooling bills.
“[Homeowners] can increase the equity in their homes almost immediately, because the appraised value of the home goes up substantially,” she said, adding that energy-efficient improvements can reduce monthly energy costs by up to 35 percent. “They’ll see a return on investment in energy savings in about three to five years.”
Such programs are particularly timely now that Illinois plans to end the freeze on electricity rates this year, ushering in an era of rising costs for homeowners, said David Kolata, executive director of the Citizens Utilities Board.
Add to that the aging housing stock, and you’ll find many homeowners looking for an opportunity to yield energy savings. Indeed, Chicago’s Department of Housing reports 438,000 city housing units are at least 60 years old.
Even so, some homeowners are put off by what they imagine will be the great expense of energy-efficient improvements.
In reality, ShoreBank reports, the incremental expense of moving from standard products to more energy-efficient ones is generally less than $3,000. Such improvements typically include, but are not limited to, a high-energy furnace, energy-efficient windows and appliances, programmable thermostat, extra air sealing and fluorescent lighting, among other features.
An energy-efficient home also is likely to have more appeal from a resale point of view. Today, more buyers are asking about energy efficiency, said Pam Rueve, Realtor with Coldwell Banker’s Halsted office on Chicago’s Near North Side.
“Heat disclosures, which give buyers a sense of average heat bills, have become a very consistent request in the last couple of years,” she said. “It’s definitely on their minds.”
Although energy efficiency isn’t at the top of buyers’ priority lists, once shoppers find houses they love, energy becomes an issue of concern. “They’re making themselves aware of what the bills are,” Rueve said. “And if they’re high, and [the cause is] an inefficient furnace, they’re asking sellers to rectify the problem before they buy.”
Green mortgages
If you’re buying a new Energy Star home or planning energy-efficient upgrades to your existing home, you may qualify for an energy mortgage, said Steve Baden, executive director of San Diego-based Residential Energy Services Network.
There are two types of energy mortgages, an Energy Improvement Mortgage, which finances the energy upgrades of an existing home, and an Energy Efficient Mortgage, which uses the energy savings from a new energy-efficient home to increase the home-buying power of consumers. The theory is that saving money on energy costs makes a home more affordable, so homeowners qualify for a bigger loan, Baden says.
After a homeowner prequalifies for a mortgage, the lender requires an energy rating to be conducted by a qualified inspector. The rater recommends cost-effective improvements and provides the calculations lenders require to underwrite energy mortgages. Typically, an energy rating costs about $300.
With an existing home, the lender uses the rater’s report to come up with a list of potential upgrades, the cost of which are rolled into the loan, says Joel Wiese, EEM product specialist for Indigo Financial Group, based in Lansing, Mich.
“We might say to the homeowner, you have a furnace that’s old and performs this way. If you replace it with a 90 percent efficient furnace, you can save $900,” Wiese said. “We quantify the potential savings.”
Created by Fannie Mae, energy mortgages have been around since the Carter administration. Still, it can be challenging to find a lender who knows how to do them.
“It is a major hindrance of this mortgage,” Wiese said. “You need to find a lender that has done it before.”
Lenders must be qualified to “actually evaluate the performance of the home you’re looking to buy, refinance or build,” Wiese said.
With Shorebank’s Homeowners’ Energy Conservation Program, those eligible are homeowners and developers of single- or multifamily (one to four units) residences in the Chicago-area doing home improvement projects of $5,000 or more.
Participants submit their mortgage rehabilitation loan applications and their rehab plans to ShoreBank mortgage-lending specialists. They then receive free energy consultations funded by Northern Illinois Energy Project to help make them aware of energy-savings options that may be available to them, said Joel Freehling, a manager of ShoreBank.
Saving on tax returns
Uncle Sam also is offering incentives for homeowners to make their home more energy efficient or give solar power a try.
Install solar technology in your home and get up to a $4,000 tax credit. Federal solar tax incentives allow homeowners a tax credit of 30 percent for qualifying solar electric or solar-water heating expenditures, up to $2,000 per technology.
Make your home more energy efficient by adding insulation, replacement windows and certain high-efficiency heating and cooling equipment, for example, and get a tax credit of up to $500 for 10 percent of the costs of the improvement.
You can claim the credit on your federal income tax form. However, improvements must be made to your primary residence, and most credits are in effect until Dec. 31, 2007. (Congress recently extended the solar energy investment tax credit for one additional year, through the end of 2008.)
Of course, the key to both energy mortgages and the tax credits is choosing improvements that ultimately save on your energy costs.
For more information, go to:
– Energystar at energystar.gov: You’ll find energy-efficient tips, plus information on federal tax credits and energy-efficient mortgages.
– Database of State Incentives for Renewables & Efficiency (DSIRE) at www.dsireusa.org. It lists incentive programs through the state of Illinois and some utilities.
– RESNET (Residential Energy Services Network) at www.natresnet.org: Find a list of a certified raters and information on green mortgages.
