Green Home Could Result in a Larger Loan

Those solar panels or radiant-heated stone floors could help snag a larger home loan under legislation now pending in the U.S. Senate.

The SAVE Act would require Fannie Mae, Freddie Mac and the Federal Housing Administration – about 90 percent of the mortgage market – to add energy efficiency to their underwriting policies.

Mortgage lenders and appraisers do not systematically consider the value of a home’s energy-efficient technology, said Robert Sahadi, director of energy efficiency finance policy at the Institute for Market Transformation, a nonprofit Washington, D.C. group promoting green building. The organization co-authored the bill.

“There have been some attempts in the past to do something about it, but they were premature, like 10 years ago, before consumers were really demanding these kinds of homes,” he said.

Sen. Michael Bennet, D-Colo., and Sen. Johnny Isakson, R-Ga., filed the bill in June. The bipartisan SAVE Act legislation has dozens of co-sponsors, and support from a broad variety of groups, including real estate agents, consumer organizations and environmental advocates. SAVE stands for Sensible Accounting to Value Energy.

While utility bills are ignored in mortgage underwriting, they usually amount to more money than real estate taxes or homeowner’s insurance, the institute says.

The typical U.S. homeowner pays $2,500 on home energy bills annually, according to the institute. The organization estimates an energy-efficient upgrade, even a small one, could reduce a home’s energy bills by 30 percent or more.

The bill would help borrowers in two ways. Lenders would factor in energy-cost savings when arriving at a borrower’s debt-to-income ratio, which could result in a larger loan. Lenders would add future energy savings to the home’s value, if that is not already reflected in the appraisal.

To be considered for the savings, a buyer or homeowner would have to submit a home energy report meeting guidelines from the Department of Housing and Urban Development.

Leading Builders of America and The Consul of North American Insulation Manufacturers co-authored the bill, Sahadi said. Supporters include the National Association of Realtors, U.S. Green Building Council, National Association of Homebuilders, American Institute of Architects, Appraisal Institute and Consumer Federation of America.

A spokesman for the Mortgage Bankers Association said the group hasn’t yet weighed in on the legislation.

A nationwide real estate consultant based in Irvine said he didn’t see a need for a law to regulate something that should be a practical matter.

“I am not sure why it takes an act of Congress to implement common sense,” said John Burns, CEO of John Burns Real Estate Consulting. “If an energy-efficient home saves someone $100 per month on their utility bill, I would think they could use that $100 toward their mortgage.

“The problem is really just that appraisers haven’t recognized what consumers recognize – that an energy efficient home saves them money, and therefore they are willing to pay slightly more for that home.”