Arizona energy efficiency mortgages
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How to use an energy efficiency mortgage to increase your practice and diversify as told by an Arizona energy auditor. EEMs just the trick up your sleeve that might land you that extra client or two a month. In Phoenix, there is a real movement towards the value of a green home especially with APS and SRP rebates going strong and more homeowners looking to make their home's energy efficient in this new economy.
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Arizona energy efficiency mortgages
- 1. How To Use Energy Efficient Mortgages (EEMs) to Increase Your Business and How They Work David Byrnes, LEED AP Home Performance Specialist dbyrnes@GreenIntegratedDesign.com YourGreenID.com Office: (602) 730-2966 ROC 273772
- 3. Have You Ever… Had clients passed up a potential home because the appliances or AC system was old and needed replacement? Or…
- 4. Have You Ever… Had a client that found their dream home, but it was slightly out of their price range?
- 5. Let me tell you a well-kept secret
- 6. Called Energy Efficiency Mortgages (EEMs)
- 7. What Is An Energy Efficiency Mortgage? • Allows a buyer to roll the cost of energy efficiency features into the mortgage as long as the whole package is cost effective. • Buyer qualifies for higher amount because of energy savings • Energy savings must be documented
- 8. Energy Efficiency Mortgage • Not a new program, started with FHA in 1993 • Purpose – to help homeowners save money on utility bills by enabling them to finance the cost of energy efficiency upgrades into their mortgage • “An EEM recognizes the energy savings of a home that has “cost effective” energy saving improvements that increase the energy efficiency of a home.” 1993 HUD Mortgage Letter
- 9. Benefits to Loan Officers & Realtors Differentiates yourself in a competitive market Allows homeowner to qualify for higher loan amount Easy process Lower utility bills can lead to lower client defaults
- 10. Benefits to Your Clients Lower energy bills and a more comfortable home Can qualify for a larger loan on a better home, with more living space and a better location Eliminates hidden expenses on utility bills Easily pay for energy improvements
- 11. Let me take a step back (beep, beep, beep)
- 12. Our Inefficient Homes • Most homes are built to code, which is the worst we can legally build anything • Use 50% to 60% more energy due to inefficiency
- 13. Our Inefficient Homes Result In • Hot, uncomfortable rooms • High utility bills • Shortened life of heating and cooling equipment • Weak airflow • Unsafe conditions • Critters and bugs getting inside • Poor air quality
- 14. So how do we know what to do first? Or how we can fix it?
- 15. [Enter] Energy Audit… which tests
- 16. Air & Duct Leakage With A Blower Door • Measures air duct leakage • Find infiltration points
- 17. Duct Leakage • APS & SRP: “An average home leaks 20% of its conditioned air to the outside”
- 18. Air Balancing Room-by-Room Pressure Measurements
- 19. Insulation & Attic Inspection The most important feature is not how much you have, but how it was installed
- 20. Combustion Testing • Test Combustion Efficiency • Test Flue Systems • Check Carbon Monoxide • Combustion Safety
- 22. AND NOW BACK TO OUR REGULARLY SCHEDULED PROGRAM
- 23. Types of EEM Qualifying Improvements Envelope • Air sealing • Insulation • Privacy screens & shutters • Windows • Duct sealing • High efficiency HVAC • Water heating Mechanical • Appliances Solar • Solar hot water • Solar electricity
- 24. There are 4 different types of EEMs
- 25. Key Features When Can an EEM Be Used? EEMs 1. Federal Housing Administration (FHA) 2. 203(k) FHA Home Rehabilitation Loans Purchase or refinance Traditional loan limits may be exceeded No re-qualifying & no additional down payment No new appraisal $4,000 or 5% of the property value may be financed Home buyer obtains a single loan to finance both property and complete major improvements after the time of loan closing EEM can be used in conjunction with a 203(k) Loan limits may be exceeded Total cost of improvements must exceed $5,000
- 26. When Can an EEM Be Used? EEMs Key Features 3. Veterans Affairs $3,000 of upgrades may be financed based solely (VA) on documented costs Up to $6,000 may be financed if upgrades are deemed cost effective 4. Fannie Mae & Secondary market guidelines permit approved Freddie Mac lenders to increase ratios 2% on the debt-toincome requirements for EEMs The expanded qualifying ratio help purchasers who are “maxed out” on their income ratios
- 27. The FHA EEM • Most popular and most user friendly of all EEMs • Can be used for purchase or refinance • No additional qualifying or down payment • No additional appraisal needed (that’s right!) • Up to 5% of property value added to loan for improvements • 90 days to complete the work
- 28. EEM Existing Home Process • Initial Home Energy Rating (HERS) • Improvement Analysis (energy modeling) • Reporting • Improvement Work • Final Inspection
- 29. HERS Index • A MPG rating for a home • A home built in 2006 would receive a HERS score of 100 • Inputs include insulation, windows, duct and air leakage and cost analysis
- 30. HERS Report • The HERS Report (Improvement Analysis & HERS Rating) will provide all of the necessary energy savings documentation for underwriting approval
- 31. Determining EEM Amount • The maximum amount available for energy improvements in FHA EEM is the lesser of 5% of 1 of the following 3: Check Original Value EEM Amount (5% of Original Value) $8,750 Appraised value $175,000 115% of the median area price of a single family dwelling 150% of the conforming Freddie Mac limit Median price: $250,000 $14,375 Limit; $417,000 $31,275
- 32. HERS Raters • Facilitate energy recommendations and upgrades between LO’s, realtors, homeowners and contractors • Determine available rebates and tax incentives • Provide necessary HERS documentation for LO’s • Perform test-out verification to ensure measures were installed correctly
- 33. Improvement Analysis Item Existing Proposed Cost Present Value Duct leakage 233 CFM25 75 CFM25 $1150 $6483 Infiltration 0.75 ACH 0.55 ACH $950 $1368 Insulation R-12 R-38 $900 $1694 Heat pump 8 SEER 15 SEER $4800 $1121 Water heating 0.89 EF 2.20 EF $1350 $5376 $9,150 $16,042 Totals
- 34. Contractor • Provide written bids and guarantees for efficiency upgrades • Must be installed to Energy Star Standards • Provides references, contractors license, business license and liability policies • 203(k) Homeowner / Contractor Agreement, 203(k) Contractor Profile submitted to 203k underwriter
- 35. Home Efficiency Roadmap 1. Building Fundamentals ▫ Insulation, Ducts, Air Leakage, Water Conservation, Management, Lighting, Appliances, Plug Loads 2. Major Systems ▫ Heating & Cooling, Ventilation, Water Heating 3. Renewable Resources ▫ Solar PV, Solar Thermal
- 36. Steps to Close Process Notes Parties 1. Homeowner finds their dream house or homeowner wants to refinance Realtor or Lender tells their client about EEMs. Homeowner, Realtor, Lender, HERS Rater 2. HERS Rating is performed on the house Rating can be done after appraisal and home inspection HERS Rater & client identify which upgrades to target 3. Improvement Lender will evaluate the HERS Rater and Analysis goes to rating and financial Lender Lender for approval analysis done by the Rater to see if home qualifies
- 37. Steps to Close Process Notes Parties 4. Lender sends the loan package to the underwriter There are different forms Lender, for FHA/VA/Conventional Underwriter stretch loans 5. Obtain normal loan underwriting approvals, internally and externally Lender, Underwriter 6. Lender puts extra funds to pay for energy improvements into escrow Lender
- 38. Case Study Loan Amount Interest Rate Improvements Monthly Payment with PITI Energy Bills True Monthly Cost Monthly Savings Annual Savings Standard Loan $165,000 4.5% $0 EEM Loan $175,740 4.5% $10,740 $1,103 $1,168 $270 $1,373 $150 $1,318 +$55 +$660
- 40. Additional Benefits • Receive $4,924 cash back from APS or SRP in utility rebates • The appraised value increased • The home is more comfortable & healthy to live in
- 41. Case Study: Documented Before and After Changes a Homeowner Can See… Floor area Air leakage Duct leakage Heat pump Water heating Insulation Walls 2964 sq ft 0.75 ACH 233 CFM25 8 SEER 0.89 EF R-12 R-11 2964 sq ft 0.38 ACH 75 CFM25 16 SEER 2.80 EF R-38 R-11
- 42. And Save! Cooling Heating Hot water Appliances Annual costs HERS Index $1,369 $180 $333 $443 $2,325 155 $620 $92 $131 $443 $1,286 82
- 43. This is what the HERS Report look like, and what the Rater will provide to the LO
- 44. More Examples
- 45. Exciting stuff, isn’t it?
- 46. Questions? David Byrnes, LEED AP Home Performance Specialist dbyrnes@GreenIntegratedDesign.com www.YourGreenID.com (602) 730-2966 ROC 273772 facebook.com/aGreenID twitter.com/Green_ID1
- 47. APS Rebates □ Duct sealing 75% off up to $250 per unit □ Air sealing □ Insulation □ Shade screens 75% off up to $250 75% off up to $250 $1 per sq ft up to $250 □ High Efficiency AC up to $525 □ Solar Hot Water $2,500 ($0.50 / kWh annual energy savings) □ Solar Electricity $1.45 per watt
- 48. SRP Rebates □ Duct sealing 75% off up to $175 per unit □ Air sealing □ Insulation □ Shade screens 75% off up to $250 75% off up to $250 $0.80 per sq ft up to $250 □ High Efficiency AC up to $400 □ Solar Hot Water $2,250 ($0.45 / kWh annual energy savings) □ Solar Electricity $1.35 per watt
Editor's Notes
- Hi my name is David Byrnes and I am a home performance specialist and owner of Green ID, basically we are energy auditors and contracting companySo what I do is to sit down with homeowners and figure out all the things we can do to make their home more healthy, comfortable and efficientWe are contractors under APS and SRP’s Home Performance with Energy Star program and a RESNET Certified company to do the HERS Ratings and upgrades for Energy Efficient Mortgages which is what I’m here to talk about today.
- Before we get started can we just do a show of hands how many here are realtors… loan officers… what other groups do we have? Has anyone heard of an Energy Efficiency Mortgage?Of the realtors by a show of hands have had clients passed up a potential home because the appliances or AC system was old and needed replacement? Or how about a client that found their dream home but it was just out of their price range? What if you could change that situation by offering an easy way to replace the appliances, or heat pump would that be something worth offering?what if as their Loan Officer you could stretch their debt to income ratio and qualify them for their dream house and do it using a proven method.Well both of those things can be done using an Energy Efficient Mortgage or EEM for short and it is way for you to really differentiate yourself and offer a creative solution for your clients
- have had clients passed up a potential home because the appliances or AC system was old and needed replacement? Or how about a client that found their dream home but it was just out of their price range? What if you could change that situation by offering an easy way to replace the appliances, or heat pump would that be something worth offering?what if as their Loan Officer you could stretch their debt to income ratio and qualify them for their dream house and do it using a proven method.Well both of those things can be done using an Energy Efficient Mortgage or EEM for short and it is way for you to really differentiate yourself and offer a creative solution for your clients
- have had clients passed up a potential home because the appliances or AC system was old and needed replacement? Or how about a client that found their dream home but it was just out of their price range? What if you could change that situation by offering an easy way to replace the appliances, or heat pump would that be something worth offering?what if as their Loan Officer you could stretch their debt to income ratio and qualify them for their dream house and do it using a proven method.Well both of those things can be done using an Energy Efficient Mortgage or EEM for short and it is way for you to really differentiate yourself and offer a creative solution for your clients
- An energy efficient mortgage is a mortgage but it has a little more power than a typical mortgage because you can roll into the loan the cost of energy efficiency upgrades. If it is a new home you can include the cost of the features that made the house energy efficient. Because of the energy savings, a buyer can qualify for a higher loan amount and the way this works is its not all just done on the word of the buyer who takes the money and does it on their own. There has to be someone involved verifying that the energy efficiency package is done according to the procedures and it is cost effective, and I’ll explain how that is determined a little later on.
- Not a new program, started with FHA in 1993The EEM’s purpose is to help homebuyers or homeowners save money on utility bills by enabling them to finance the cost of adding energy efficiency features to new or existing housing as part of their home purchase or refinancing mortgage.Section 513 of the Housing aThe total amount of your mortgage is based on the value of your home plus the projected cost of energy-efficient improvements. Because the home will be more energy efficient, your clients will save on utility costs and, therefore, be able to devote more income to the monthly mortgage paymentFHA's Energy Efficient Mortgage program (EEM) helps homebuyers or homeowners save money on utility bills by enabling them to finance the cost of adding energy efficiency features to new or existing housing as part of their FHA insured home purchase or refinancing mortgage.When you are buying, selling, refinancing, or remodeling your home, you can increase your comfort and actually save money by using the Energy Efficient Mortgage (EEM) EEMs provide the borrower with special benefits when purchasing a home that is energy efficient, or can be made efficient through the installation of energy-saving improvements.nd Community Development Act of 1992. -
- Differentiates yourself in a competitive market, very few people even know that it exists and are let alone using it. I do see some realtors using the title green mortgage professionalsAllows homeowner to qualify for larger, more profitable loan amount and gives you a tool to get homeowners in homes that they like but may pass up because they don’t want to put up the money for a new HVAC systemCan be used during a refinance, existing home purchase or new home constructionEasy, understandable process, he only additional form required is done by the RaterLower utility bills can lead to lower client defaults
- Lower energy bills and a more comfortable home = more money in their pocketHomeowner can immediately upgrade their HVAC system or to get solar on their homeCan qualify for a larger loan on a better home, with more living space and a better location!Eliminates hidden expenses from utility costsEasily pay for energy improvementsSo let me take a step back and explain a little but about what an energy audit and why we need one
- So often as homeowners we just accept well this room gets hot in the summer time, or I am constantly dusting in my home or even I have a $300 utility billSo a little more about us and the industry in generalWhat we are in is called a home performance industry and there is a big difference between home performance contractors and just regular contractorsAnd the biggest difference is a science-based approach, a more holistic approach to building and retrofitsTo give you an example, the way most homes are built and approached Is that you have one specialist for each different thing so you have a framer that builds the house, you have a plumber that installs plumbing, electrician, HVAC guys and all these different people don’t really work togetherAnd that’s where we get these inefficiencies in a homeSo our approach is to bring it all in-house and approach the house as one system where everything is interconnected where if you change one thing, you change othersAnd that’s what the industry is all about and it’s about measuring that improvementSo there is a lot of potential by really reworking your house and looking at the fundamentals of your home and how it’s builtand a big thing I talk about is conservation vs efficiencywhat conservation is about is kind of tweeking your lifestyle so that you use less energy what efficiency is and it’s what we do is, address the building itself so you don’t have to change anything, you don’t have to change your lifestyle you can live the exact same way, but your bills go down and you’re actually more comfortableand that’s really our side of things and what we doSo we start with a home energy audit
- So often as homeowners we just accept well this room gets hot in the summer time, or I am constantly dusting in my home or even I have a $300 utility billSo a little more about us and the industry in generalWhat we are in is called a home performance industry and there is a big difference between home performance contractors and just regular contractorsAnd the biggest difference is a science-based approach, a more holistic approach to building and retrofitsTo give you an example, the way most homes are built and approached Is that you have one specialist for each different thing so you have a framer that builds the house, you have a plumber that installs plumbing, electrician, HVAC guys and all these different people don’t really work togetherAnd that’s where we get these inefficiencies in a homeSo our approach is to bring it all in-house and approach the house as one system where everything is interconnected where if you change one thing, you change othersAnd that’s what the industry is all about and it’s about measuring that improvementSo there is a lot of potential by really reworking your house and looking at the fundamentals of your home and how it’s builtand a big thing I talk about is conservation vs efficiencywhat conservation is about is kind of tweeking your lifestyle so that you use less energy what efficiency is and it’s what we do is, address the building itself so you don’t have to change anything, you don’t have to change your lifestyle you can live the exact same way, but your bills go down and you’re actually more comfortableand that’s really our side of things and what we doSo we start with a home energy audit
- So often as homeowners we just accept well this room gets hot in the summer time, or I am constantly dusting in my home or even I have a $300 utility billSo a little more about us and the industry in generalWhat we are in is called a home performance industry and there is a big difference between home performance contractors and just regular contractorsAnd the biggest difference is a science-based approach, a more holistic approach to building and retrofitsTo give you an example, the way most homes are built and approached Is that you have one specialist for each different thing so you have a framer that builds the house, you have a plumber that installs plumbing, electrician, HVAC guys and all these different people don’t really work togetherAnd that’s where we get these inefficiencies in a homeSo our approach is to bring it all in-house and approach the house as one system where everything is interconnected where if you change one thing, you change othersAnd that’s what the industry is all about and it’s about measuring that improvementSo there is a lot of potential by really reworking your house and looking at the fundamentals of your home and how it’s builtand a big thing I talk about is conservation vs efficiencywhat conservation is about is kind of tweeking your lifestyle so that you use less energy what efficiency is and it’s what we do is, address the building itself so you don’t have to change anything, you don’t have to change your lifestyle you can live the exact same way, but your bills go down and you’re actually more comfortableand that’s really our side of things and what we doSo we start with a home energy audit
- We do a lot of energy audits because homeowners are paying too much for their energy bills, other people get really, really warm and uncomfortable and running their AC a lot, other times homeowners are getting sick in their house and it has to do with the building itself,Rather than making a recommendation before we see your house we want to test the house and figure out what the root cause of those things areAnd then we prioritize and give you a list of recommendations and then figure out with you what makes sense to you as part of a stage one or you do the whole thing
- To measure the leakiness of your home, we use a blower door to depressurize the home. We also inspect each room to pinpoint the sources of air leakage.
- We can also we a blower door test to determine the duct leakage out of each register.Many homeowners do not realize that leaky ducts are a common and significant problem with homes. A duct test can reveal how much conditioned air is escaping from your heating and cooling system. Keeping this air where it belongs is an important step towards increasing your comfort and the home’s energy efficiency.Can reduce heating and cooling system efficiency by as much as 15%20% of the air that moves through the duct system is lost due to leaks, holes and poorly connected ductsThis air loss can create a vacuum effect, pulling in more outside temperature air increasing energy costs and polluting your indoor air quality
- Room pressures
- The effectiveness of insulation depends on the R-value of the insulation, how well the insulation is installed.The higher the R-value, the more efficient the insulation will be. However, if the insulation is not installed properly, the actual performance of the insulation can drop drastically.Insulation and air sealing go hand-in-hand – like wearing a sweater and a windbreaker on a cold, windy day. The insulation does a great job of resisting heat from transferring in and out of your home, and the air sealing will close up any gaps around your doors or leaks around your windows where air has been seeping in and out.MisalignmentsAttic can reach 150 degrees in summer Uncomfortable roomsHot room in the summerStress on the AC systemHigh electric and gas bills
- Make sure the home is safe for your clients so part of an energy audit will check for gas leaks, carbon monoxide levels in combustion appliances and also pressure imbalances that can cause CO to be sucked in from the garage, WH or other gas appliance back into the house
- To better visualize gaps in your home’s thermal envelope, we use advanced infrared cameras which can show temperature differences. By locating these weaknesses, we can provide more effective solutions for improving comfort and energy efficiency.
- One thing I like to mention the 5 step plan to solar because solar is on here. The first step is efficiency, using what the home already has an making that better, it is less expensive to put money into using less energy than it is to putting money into making energy for that house. Step 2 and 3 is efficiency again because this is very important and there are usually some other things we can do to a home that are more cost effective than solar. Step 4 is solar thermal or solar hot water Efficiency upgrades you can break down into envelope improvements like insulation and air sealing to cut down the amount of heating and cooling the house needs. Heating and cooling is by far the biggest energy user in a home, which can be around 50% of the energy use. Second we can increase the mechanical systems in the house, the AC system and the water heating system.And all things can be financed in an energy efficient mortgage and mechanical is that efficiency steps are less expensive than solar.
- For new homes one of the big benefits is thatBuyers can avoid having to pay mortgage insurance by getting thisAll buyers who qualify for a home loan qualify for the EEM. The EEM is intended to give the buyer additional benefits on top of their usual mortgage deal. The lender will use the energy-efficiency of the house, as determined by a HERS Rating, to determine what these benefits will be.
- All buyers who qualify for a home loan qualify for the EEM. The EEM is intended to give the buyer additional benefits on top of their usual mortgage deal. The lender will use the energy-efficiency of the house, as determined by a HERS Rating, to determine what these benefits will be.
- Very user friendly
- This is the existing home process in an EEM. You want to have the HERS Rater come out, early, early on in the process. Right after appraisals and right after home inspections have the HERS Rater come out there. The HERS Rater will do their initial inspection, calculations and software modeling of the home… take those numbers and do an improvement analysis to show what the savings are going to be for the improvements modeled for the EEM. Once that’s decided on and everything is in order to qualify for the mortgage then that report will be sent to underwriting and the lender for approval. That will put the money into an escrow account, ready for the improvement work to begin. The improvement work is completed and the final inspection is done and that’s all it takes
- So there has to be documentation that the energy savings are going to work and it is going to be cost effective.A HERS Index is between 0 and 100, the higher the Index the more energy the home uses. A Index of zero indicates the estimated annual energy bill will be zero dollars.A HERS Report includes:The overall Rating Index of the house as it.Recommended cost-effective energy upgradesEstimates of the cost, annual savings and useful life of upgradesImproved Rating Index after the upgrades are installedEstimated annual total energy costs for the existing home before and after upgradesOK so let’s talk about what is a HERS Rating because this is an important part of the process since as I said in the beginning there has to be documentation that the energy improvements are installed properly and that they are cost effective. The way its most often done is with a certified HERS rating, you would have a certified HERS Rater involved and what they do is they go to the house, they inspect it they test it as you see in the left photo is a picture of our blower door to test the house for infiltration rates. All the data from the inspection and testing then, the Rater will take to do the software modeling and the software generates the reports and a HERS Index. HERS stands for Home Energy Rating System. And the HERS score is a number with 100 is a house that just meets the 2006 Energy Code, all homes should have been built to then. A zero energy home, which produces same amount of energy as it uses would have a HERS Index of zero. Any home that has a score higher than 100 is a home built less efficient than the energy code and if it’s less than 100 than it is more efficient than a home built to code.
- - Model house as-is.- Determine improvements that are cost-effective- Specify cost and lifetimes of improvements
- First we want to cut down the amount of heating and cooling we need by taking care of our building fundamentals like insulating and air sealing. Second we want to increase the efficiency of the mechanical systems in the house, the heating and cooling system and the water heater. And then we want to start looking at solarWhy YOU care - Protect your investment - Homeowners are vulnerable to unstable financial markets- Every dollar spent on efficiency upgrades adds to home value & comfort- Efficient homes are worth more in any market- Reduce utility consumption and you automatically reduce your carbon footprint- Support your local economy while lowering your bills- Your investment pays for itself in savings
- It is best to have the HERS Rating done as early in the loan process as possible. This way, the Rating can be performed while other aspects of the loan are being processed. You may get a larger tax deduction with the EEM because the interest on mortgage payments is tax deductible. This can save you more money than paying for energy upgrades with a credit card, bank loan, or cash, none of which are usually tax deductible.
- In the fall of 1995, Caroline and Tommy Chang decided to refinance their 35-year-old home to take advantage of lower interest rates. Their lender suggested they get a HERS Rating on the home so they could finance energy improvements through their new mortgage deal as well.The lender increased the loan by $8,760 to cover the cost of energy improvements. Their final loan amount was $176,400, which is higher than they could have gotten with out the EEM. The loan closed and the improvements were installed. These included double-paned windows, wall insulation, ceiling insulation, furnace duct repairs and insulation, and a few smaller items. These improvements, combined with their lower mortgage interest rate, mean the Changs will be saving about $230 per month. They will be more comfortable too!
- RealtorsGreat opportunity, but realtors won’t mention them because you won’t make any extra money from an EEM and they may feel like it’s one more inspection that may delay closing or getting paidBut it really opens up the market for these buyers to choose from so many more properties than they would have to begin with and If you are showing your clients 20-30 houses to one perfected buyer and half of those houses are discounted because they need a new AC system or a change out of all the appliances and the buyer discounts those houses because they don’t have the money