As I type away today, the sound of construction continues to ring in my ears. But this is not actual “home construction” as one would expect. Instead this is the installation of a solar panel grid atop the Badger Realty building consisting of 48 solar panels. (I know!) This fancy new system is expected to produce on average over 15,000 kWh (kilowatt-hours) of clean electricity each year for the next 40+ years. Needless to say, we’re pretty excited.
It just so happens that there is a Senate bill being reintroduced that is going to have a direct impact on the borrowing capacity of home buyers based on the energy efficiency of their new prospective home. If you ask me (which you didn’t) this sort of thing is long overdue.
The theory behind the bill, is that a home’s energy efficiency translates into direct savings to the home owner. That savings, in turn, would put more money in the pocket of said home owner and therefore allow them to afford more “home”. Now, before anybody freaks out and starts throwing “yeah-buts” my way, we all know that there is more to mortgage affordability than the electric bill. But let’s review some of the meat of this story.
The bill would give lenders the flexibility to calculate the projected energy savings derived from the energy-efficient features or upgrades in the home. The lenders would, as usual, measure the borrower’s income against expenses and the value of the home. This additional “factor” would not only give borrowers the capacity for a larger mortgage, but would potentially lower their interest rates! Ahh, I have your attention now. (Did someone say “money-savings”?)
There are already some programs in place for “energy-efficient” mortgages under a HUD program (Department of Housing and Urban Development), but this new legislation would require the lenders to take the “projected savings” into account whenever they were presented with a qualified energy report. This program would be farther reaching and offer this benefit to a whole new group of buyers.
The bill was originally introduced back in 2011, but didn’t get the legs to make it very far. This time they have removed the penalties for older, less efficient homes and are making deeper appeals to the real estate industry. (Smart move.) Our very own Democratic Senator, Jeanne Shaheen is introducing a more comprehensive energy bill intended to lessen energy use, lower greenhouse gas emissions and bolster the market for conservation upgrades. If this mortgage bill can ride along on those coat-tails, it actually has a good chance of passing.
According to Senator Michael Bennett, a Democrat from Colorado and co-author of this bill, the average household’s energy costs typically total around $70,000 over the life of a 30-year loan. That is more than real estate taxes (usually) and insurance payments that are already taken into account during the origination and underwriting of the loan. It stands to reason that we should be taking a closer look at those factors that actually SAVE the homeowner money.
When a homeowner installs better windows, doors, insulation and other energy-reducing upgrades, the average reduction in energy costs are around 30%. A few weeks ago we talked about what today’s buyers want when shopping for a home, and an energy-efficient home is at the top of the list. The National Association of Realtors reported that 4 of the top ranked home features wanted by buyers were related to energy savings. 94% of buyers stated they wanted energy-star rated appliances, 91% wanted the whole structure to be energy-star rated and 89% wanted (at least) energy-star rated windows.
The key has been convincing buyers to actually PAY for those upgrades. Proponents of this bill are hoping it will help bridge that gap between “wanting” an energy-efficient home and “buying” one. They are expecting this bill will not only promote energy conservation and provide a boost to the construction industry, but also generate over $1 billion a year in consumer savings by 2021.
To put this in perspective, the average borrower could expect to gain about 5% more borrowing power. Clearly this is not going to get you that 3-car garage you were hoping for. But, of the $2 trillion in mortgage loans originated every year, this will have a significant impact. “Considering there are disclosures for termites and radon and that you have an inspector check out your entire home for structural defects, this significant factor has been living in a proverbial blind spot for too long,” noted Badger Realty agent Lee Phillips.
I’m encouraged by this bill. Not just for the financial benefit to potential buyers or even for the indirect benefit to home owners who have made the effort and incorporated these upgrades into their homes already. I’m mostly encouraged that there is legislation in progress that is rewarding energy conservation. I’ll admit, I tend to be a bit of a tree-hugger, but the overall benefit is global, not local. We’re excited about our new solar panel installation and are looking forward to seeing more of this type of upgrade throughout the Valley.