You are interested in purchasing a new home and may have even placed an offer. The smart home buyer will then have an inspection performed by a qualified home inspector. Now you should also have your potential home rated for energy efficiency. It can help you on your mortgage and also help you plan for the energy usage in your new home.
A home energy rating (HERS) is gaining significance in real estate transactions for the buyer and the seller. Today we will concentrate on its importance for the buyer.
The home energy rater is a relatively new occupation, potentially starting as a cottage industry for those with entrepreneur spirits. The rating system involves a review of the home plans and an onsite inspection which typically includes a blower door test and a duct leak test.
The results are fed into a computer software package that determines a HERS index from 0 for a net zero energy usage home and scales upward to 150, 130 might be where a typical existing home might fall. The reference home in the 1993 Model Energy Code has an index of 100. The index supercedes an older HERS score that was outdated on July 1, 2006.
Your HERS index should be less than 85 in climate zones 1-5 to meet ENERGY STAR requirements. ENERGY STAR is a joint program of the U.S. Environmental Protection Agency and the U.S. Department of Energy. Ohio is in climate zone five for the most part with the exception of Southwestern Ohio, which is in zone four. Zones 6-8 are considered mostly in the more extreme cold climate areas of the United States and require an index of 80 to qualify under the ENERGY STAR program.
The HERS index is important for calculating potential energy costs in your new home. It also may qualify you for an Energy Efficient Mortgage (EEM) through the ENERGY STAR program. Through this program you may be able to step up to a more expensive, and more energy efficient home.
An EEM is available for conventional, FHA and VA home mortgages. To qualify you must have home rated for a HERS index before financing the home. An Energy Improvement Mortgage (EIM) is a mortgage on an existing home with energy efficient improvements and is also considered an EEM for the sake of the loan.
With an EEM through a conventional Freddie Mae or Freddie Mac loan you can step up to a more expensive home by increasing your income by a dollar amount equal to the estimated energy savings. The home loan value is also reflected higher in a Fannie Mae loan, which would be helpful for the seller. More on that in the next part of this series, selling your energy efficient home.
In an FHA or VA loan the lender can increase the amount of the loan to pay 100% of the cost for energy efficient improvements. There is a maximum cap at $8,000 for FHA loans and $6,000 for VA loans. Consult with your lender to find out your level of qualification.
The Federal Government has a pilot program for ENERGY STAR homes with high HERS indices. This program will tie energy savings to a reduction in your Federal income taxes.
It may be worth your time and investment to look into these options. Here is a list of qualified home energy raters and a list of qualified Ohio mortgage lenders under these programs. You can search all of Ohio or for a specific lender.
This is a three-part series on ways to save money by investing in energy efficient home improvements. In the upcoming weeks we will report on ways to save money by investing in home improvements in these three areas.
- Home Energy Series, Part I: Controlling Costs, Save $
- Home Energy Series, Part II: Buy an Energy Home
- Home Energy Series, Part III: Sell a Green Home