Housing: Bigger, Cheaper, More Efficient Homes

May 19, 2006 — -- What if I told you I've found a way you can buy a house that's a little beyond your means? And that once you move in, it'll be cheaper to maintain than other houses? Still reading? I thought so.

It's called an Energy Efficient Mortgage, and it can save you money and help you find a great home. It's a federally recognized program that gives you a larger loan if you purchase an energy-efficient house or agree to make energy-efficient upgrades.

Here's how it works. You find a home you're interested in. You hire a trained energy rater to perform a Home Energy Rating Systems report -- or HERS report -- on the home. (A HERS report typically costs between $100 and $300, and some of that can be rolled into the mortgage.)

First, the energy rater gives the house a score for its current energy efficiency. Then, if applicable, he or she recommends energy upgrades for the house. Next, the rater calculates the cost of the improvements and the savings they will provide.

Finally, the rater issues an Improved Rating Score that reflects how efficient the house would be with the suggested upgrades. If you decide you want to buy the home, you show the report to your lender.

So why would lenders be willing to give you a bigger loan just for buying an energy efficient house or making energy efficient improvements? Have they suddenly become gung-ho environmentalists? Not really. They do it because the less money you have to spend on power bills, the more money you'll have available to pay your mortgage. (And of course, the bigger your mortgage, the more money they make!)

Let's say you can qualify for roughly a $133,000 mortgage on a standard house. If you find the right house, the government estimates you'd be eligible for a $142,000 mortgage on an energy-efficient house -- $9,000 more!

Energy Efficient Mortgages are also available if you're staying in your current home and refinancing it. They can be especially beneficial if you plan to remodel anyway. Say the house could use energy improvements, like a new furnace, for $5,000. Often lenders will increase the amount of your mortgage by the estimated cost of those improvements --