Living Green: The Missing Manual

Financing Green Construction

Few people have enough cash on hand to pay for a green building project without help. There are two ways of financing green construction, as this section explains in detail:

• Taking out a mortgage that gives you credit for energy efficiency.

• Finding tax credits, grants, and rebates to help with some of the cost.

Green Mortgage Options

An energy efficient mortgage (EEM) helps you qualify for a larger loan, because the money you'll save on energy costs gets taken into account right in the mortgage. That means you have more money to put toward a greener, more efficient home. EEMs are an option when you're buying a new home that's LEED- or Energy Star–certified.

If, on the other hand, you're looking to borrow money to make renovations that will improve the efficiency of your current home or one you want to buy, you can apply for an energy improvement mortgage (EIM).

To qualify for an EEM or EIM, you'll need to get a HERS report. No, that's not your wife's or best friend's opinion of the house; it stands for Home Energy Rating Systems. This report, which costs a few hundred bucks (but you may be able to get the seller to pay for it—no harm in asking), weighs factors such as utility rates, insulation, appliances, windows, and the local climate, and rates the house in the following categories:

• An Overall Rating Index of the house's current energy efficiency.

• A recommendation of cost-effective energy upgrades (that is, upgrades that'll save more money than they cost to install).

• Estimates of how much recommended upgrades will cost, how much money they'll save each year, and how long they're likely to last.

• An Improved Rating Index, which estimates how efficient the house will be after the recommended upgrades.

• Estimated total annual energy costs for the home before and after the upgrades.

Table 4-2 shows an example, taken from the U.S. Department of Housing and Urban Development's website (www.hud.gov), of how an EEM can increase your buying power. The figures in the table assume a 30-year term, a mortgage rate of 7.5%, and a down payment of 10%. (The table doesn't include the money you'll need to spend on taxes and insurance.)

Table 4-2. Afford More Home with an EEM

	For a Standard Home Without Energy Improvements	For an Energy-Efficient Home
Buyer's total monthly income	$5,000	$5,000
Maximum allowable monthly payment (28% debt-to-income ratio)	$1,400	$1,500
Maximum mortgage at 90% of appraised home value	$221,500	$237,300
Extra Borrowing Power of an Energy Efficient Mortgage		$15,800

Grants, Rebates, and Tax Credits

There are lots of national, state, and local programs out there to help homeowners who want to go green. The U.S. Internal Revenue Service, for example, gives tax credits for certain improvements that boost a home's efficiency, such as insulation, exterior doors and windows, solar panels, and so on. For the latest on federal energy tax credits for homeowners, visit www.irs.gov.

Tip

Homeowners whose income is below a certain threshold may qualify for free home weatherization through the U.S. Department of Energy–sponsored Weatherization Assistance Program. You can get details at www.eere.energy.gov/weatherization.

State and local governments also offer tax credits for energy improvements. Because there are so many different programs, it's impossible to list them all here. Start with the website of your state's department of revenue or taxation and search for energy credits. You can also call your city or town hall and ask about any local credits, rebates, or programs related to improving your home's energy efficiency.

Many utility companies offer free energy audits (Professional energy audit) and give rebates or other incentives for upgrades such as replacing old, energy-hogging appliances with Energy Star–rated ones. Call your utility company or check their website to see what they offer.

Tip

Check out the U.S. EPA's online guide to programs that fund green building projects: http://tinyurl.com/l8xcrl.