Energy-Efficient Buyers

John Neil

By John Neil

Clients searching for a “green” home may benefit from an Energy-Efficient Mortgage (EEM), which allows borrowers extra money to pay for energy-efficient upgrades to a new or existing home. The primary benefit of an EEM, in addition to supporting the environment, is that borrowers can qualify for a higher priced house. REALTORS® looking to broaden selections for their clients should keep this in mind.

Borrowers qualify for 33 percent of debt-to-income ratio on an FHA loan if it is “green,” versus 29 percent if it does not support energy efficiency. While upgrades to an existing home will need to be approved by the lender, typically a green mortgage can fund improvements, such as:

• Double-paned windows.
• Modern air conditioning and heating unit (About 50-70 percent of the total energy used in a home comes from the HVAC system).
• Insulation.
• Sealing windows and doors more efficiently.
• Chimney fixes.
• Solar panels.
• Grey water systems.
• Energy-efficient appliances.
• Tankless water heater.

Energy-efficient options add an additional expense to the total home price, however. In fact, the price of green home is generally between 5 to 10 percent higher, according to industry reports. Given the financial considerations, Mike Moir with Mike Moir Real Estate at the Woodhouse Group in Eagle, Idaho, says, “It is getting there, but the resells have not quite caught up to hold that value yet.” As a result, “The market is in its infancy for green mortgages.” Still, as a REALTOR®, there are several key groups to keep in mind when considering green buyers.

Group #1: Those Interested in New Construction

When it comes to buying an energy-efficient home, “We see more benefits for new home construction than we see for resell,” Moir says. “People who have already spent money to get into a house will not spend more money to upgrade appliances.”

Other factors of building new include the dearth of houses available in the market. “Our inventory is at historic lows,” says Moir. “We just don’t have enough resell homes in the market as a whole — especially when we consider a buyer’s wishes, needs and wants, and their resources.” This becomes an extra challenge for buyers seeking energy-efficient homes.

Group #2: Buyers Who Will Be in a Home Long-Term

“Most savings come from using appliances that are energy efficient,” explains Moir. “If you are going to be in the home for longer than 15 years, it will pay off .”

Group #3: Millennials

Moir stated that the number of millennials – people under age 34 – who are becoming home buyers is enormous. Not only are millennials more conscious of a house being efficient than older generations, according to a recent Realtor.com study, but they are also wired into the technology that helps control these “smart” homes. “Home energy efficiency is not the most-deciding factor for this group, but it is certainly a deciding factor,” explains Moir. “Cost controls every.”

Group #4: Environmentalists With an Extra $20,000… Or So

Moir notes that solar panels are a whole different ball game.

“It is a big investment, not for the mass market, as there hasn’t been a sufficient return at this point,” he explains. It can cost around $25,000 to install solar panels to power a 2,500-3,000 square foot home. Even with the federal rebates of 30 percent, available through Dec. 31, 2021, spending $17,500 will still increase a buyer’s mortgage payments more than is off set by energy savings.

“You are making a lighter carbon footprint by using upwards of 30 percent less energy in your home,” adds Moir, “but most people are not in a position where they can spend the extra money.”

Take it to the Bank

Buyers can discuss the three types of EEMs available with their lender:

1. Conventional: Connected with Fannie Mae and Freddie Mac allows borrowers up to 15 percent of the home’s appraised value for improvements. On March 30, Fannie Mae improved their options for energy-efficiency financing with their HomeStyle Energy mortgage that can be used on one-four unit properties, including condominium units. Borrowers can finance up to $3,500 in weatherization or water-efficiency upgrades without having to obtain an energy report. A fact sheet for real estate agents provides additional information on these changes.

2. FHA: Buyers can borrow the lessor of (a) 5 percent of the home’s value; (b) 115 percent of the median area price of a single-family home; or (c) 150 percent of the conforming Freddie Mac limit for that area.

3. VA: Allows past and present military personnel to spend up to $6,000 for energy- efficient upgrades when purchasing an existing home.

EEMs were designed in the late 1970s to off er people incentives for building energy efficient homes. Today, they are still a hit with homebuyers seeking a more environment- friendly living space that uses fewer resources for temperature control and lowers monthly utility costs.


John Neil is the Idaho mortgage sales manager at Bank of the Cascades. A 21-year veteran of the mortgage industry, John manages a growing team of mortgage loan officers throughout Treasure Valley. Responsible for recruiting, training and developing top talent, John has been instrumental in developing construction, land and lease financing options. John received his bachelor’s degree from Boise State University and is actively involved in the local community including Kuna High School Football Boosters, Noon Optimist Football and the Boise State University Alumni Association. You can reach John at (208) 319-2431 or by email at jneil@botc.com.