Wrapping the cost of energy improvements into a mortgage – ContraCostaTimes.com.

By Eve Mitchell, Contra Costa Times
Posted: 07/16/2011 04:00:00 PM

Stuck with soaring utility bills in a home that’s a glutton for energy? Buying a home that has a lot to be desired in terms of energy-efficient features? There’s hope. An under-the-radar program that has been around since 1995 can help buyers save on their utility bills by letting them fold the cost of energy improvements into their mortgage.

The program, dubbed Energy Efficient Mortgage, can be used by homeowners with both Federal Housing Administration and Veterans Administration loans.

In California, homes built before 1978 stand to benefit the most from such improvements. That’s because 1978 is the year when builders were required to start incorporating energy-efficient building techniques. But even homes built after that date can benefit from improvements to make them more energy-efficient.

People who are interested in taking out an Energy Efficient Mortgage need to find a qualified energy consultant who is familiar with the program. Consider asking a real-estate or mortgage professional for a recommendation. The cost of an inspection to identify the improvements can also be included in what’s folded into the loan.

Under the FHA’s Energy Efficient Mortgage program, a borrower can add up to $8,000 — or 5 percent of the home’s value, whichever is more — to the loan amount to pay for qualified improvements, and up to $2,000 for weatherization improvements.

Examples of energy-efficient improvements allowed under FHA’s Energy Efficient Mortgage program.

  • Replacing a furnace/cooling system
  • Fixing or replacing a chimney
  • Insulating an attic, crawl space, and/or pipes and air ducts
  • Replacing doors and windows
  • Installing active and passive solar technologies

Donna and Eduardo Peralta used an Energy Efficient Mortgage to get work done on their Fairfield home before moving into the place in April.

They were able to roll the cost of the $8,000 worth of improvements that paid for attic-insulation improvements and duct-sealing work into their 30- year, fixed-rate FHA loan, which increased their monthly mortgage payment by about $40 to $3,080. But that extra cost will be more than paid for by the energy savings they will see as a result of the improvements, an estimated $147 a month.

“We were able to (pay for the energy improvements) through our mortgage instead of getting a personal loan to get the work done on the home,” said Donna Peralta, 35.

Maria Santos, a Realtor with the Fairfield office of Prudential California Realty, represented the Peraltas in the transaction to buy their home and told them about the government-sponsored program, which has been around since 1995.

The Peraltas were told that while the cost of their mortgage would go up slightly, they would see lower utility bills as a result of the improvements that were done, Santos said.

“It’s more in the long run for them to save money on their (energy) bills.

” Green Home Solutions, a division of The Grupe Co., a Stockton-based home builder, has partnerships with Prudential California Realty, Keller Williams Realty and various mortgage companies to provide free inspections to home buyers interested in the

“We call it the best-kept loan secret,” said Stephanie Rodriguez, director of sales for Green Home Solutions.

To be eligible for an Energy Efficient Mortgage, the projected energy savings have to be greater than the cost of the work. The savings are calculated using what’s called the Home Energy Rating System index, which calculates what the average energy usage would be in the home once the improvements are made compared to a similar home that did not have the work done.

However, actual savings will depend on people’s energy usage habits, Rodriguez said.

With the Peralta’s home, the recommended insulation work was calculated to result in an annual savings of more than $800 off their annual utility bills while sealing up leaking ducts would save more than $900, or a total yearly saving of more than $1,700.

To find out more information about the HERS index, and how it can be used to help measure a home’s energy efficiency, go the California Energy Commission’s website at http://www.energy.ca. gov/HERS/booklet.html or call 800-772-3300. The Energy Commission can also provide a list of companies certified to provide HERS ratings in your area.

Contact Eve Mitchell at 925-952-2690.

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