As energy costs continue to rise, consumers are focusing more than ever on green products and energy-efficient home technology. The trouble is, this technology is still expensive, and for some, cost prohibitive.
For those who can afford it, there is then the question of value. What is this technology worth once it’s in the home? Until now, mortgage lenders have refused to factor energy savings into the value of the home.
That may be about to change. A bipartisan bill in the U.S. Senate, called the SAVE Act (Sensible Accounting to Value Energy), could help borrowers buying an energy-efficient home get a larger mortgage.
The idea is pretty simple: Let the energy savings in a home from green technology, like solar panels and high-efficiency appliances, add to the value of the home on the appraisal and in the mortgage calculation.
“It’s about energy efficiency, it’s about savings, it’s about increasing the borrowing power for the borrower. I think it’s a win-win for the industry,” said Sen. Johnny Isakson, a co-sponsor of the bill.
The bill instructs lenders with loans backed by Fannie Mae, Freddie Mac and the Federal Housing Administration, (which is about 90 percent of the market) to account for expected energy cost savings.
Those savings must then be factored into how much the borrower can afford in a monthly mortgage payment, so the energy savings are essentially subtracted from a borrowers expenses.
“You would be amazed at how a few dollars can make a difference in a transaction, $50 in a monthly payment, because people calculate their purchase and what to borrow based upon what it’s going to cost them per month,” argued Isakson.
The bill also tells lenders to add the value of expected energy savings to the value of the home in the appraisal. Since mortgage amounts are based on a percentage of the value of the home, this would allow borrowers to get a bigger mortgage.
That’s where homeowners, like Tamara Lyons in Darnestown, Md., who already have green technology in their homes, will be able to make more money when they sell. The value of green will be in the appraisal.
“A lot of my neighbors feel that it’s too much of an initial investment, and they don’t want to put that money down,” explained Lyons, “But, if they see that it’s going to add to the value of their home for resale purposes I think it would definitely make the idea more sexy and more appealing.”
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The legislation could also benefit companies that are investing heavily in green product development.
“Certainly companies like Dow or Home Depot who have been working on selling and highlighting their energy-efficient products. Insulation manufacturers … the whole host of manufacturers who make the products that go into the homes that make them more energy efficient,” said Stephen Cowell, CEO of Conservation Services Group.
“So we have a host of technologies and this would give manufacturers, builders, retailers and retrofit companies all an opportunity to begin reaching consumers to say ‘if you take advantage, if you put these products in, you can increase your home’s value’ because it’s now available to a broader range of homebuyers in the marketplace.”
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The legislation would not cover all loans, just those backed by the federal government. Borrowers would have to submit a qualified energy report to get the adjustments. The hope is that the broader lending industry will adopt the new standards.
“At banks it’s going to take a little bit of time to get their arms around it,” admited Cowell. “We’re hopeful that we can work with the banking industry to get those implemented, and obviously our federal agencies are directed in the act to work with the banking community to adjust. So that’s really the sticking point to implementing the legislation, will be getting the banks to make those adjustments in their lending guidelines.”
The bill under consideration Friday was modified to make it entirely optional for homeowners who choose to submit an energy report. It also removes any penalties against homes that do not have an energy rating.
—Follow Diana Olickon Twitter @Diana_Olick.