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SAVE Act Promises Larger Mortgages For Green Homes

Written by Than Merrill

Green homes, otherwise known as energy efficient homes, have become somewhat of a commodity in recent years. For the environmentally conscious, their unique features serve as a means to combat rising energy costs and reduce their carbon footprint. Others embrace green technology as the latest and greatest investment opportunity. Of particular concern, however, is the price energy efficient homes may cost. The technology used to save the environment has been relegated in favor of more economical options.

However, a bipartisan bill that is currently in the U.S. Senate has attempted to make the acquisition of green technology more readily available to anyone. Appropriately dubbed the SAVE Act (Sensible Accounting to Value Energy), this bill could potentially enable borrowers to receive a larger mortgage, given they purchase an energy-efficient home. Until the proposition of the SAVE Act, mortgage lenders refused to factor energy savings into the value of green homes.

The logic behind the bill is relatively simple; allow the addition of energy saving technology to a home to be factored into the appraisal and mortgage calculation. Subsequently, solar panels and high-efficiency appliances will increase the value of a property. The bill implores lenders with loans backed by Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA) to account for expected energy cost savings.

“It’s about energy efficiency, it’s about savings, it’s about increasing the borrowing power for the borrower. I think it’s a win-win for the industry,” said Sen. Johnny Isakson, a co-sponsor of the bill.

Savings resulting from green homes may be applied to the borrowers budget and should, therefore, allow them to afford a larger monthly mortgage payment. Essentially, the amount a borrower will save in energy costs should be subtracted from their expenses. The debt-to income ratio that is calculated during the mortgage process will then permit the borrower to acquire a larger loan.

“You would be amazed at how a few dollars can make a difference in a transaction, $50 in a monthly payment, because people calculate their purchase and what to borrow based upon what it’s going to cost them per month,” argued Isakson.

Should the bill pass, lenders will be forced to add the value of expected energy savings to the value of green homes upon appraisal. Since mortgage amounts are based on a percentage of the value of the home, this would allow borrowers to get an even bigger mortgage.

As of Friday, the SAVE Act is entirely optional for those who wish to participate. To do so, existing homeowners and potential buyers will need to submit a qualified energy report to receive any benefits.

According to the Institute for Market Transformation, the SAVE Act could potentially “revitalize the hardest hit sectors of the economy.” Benefits of the bill include:

  • No cost to the taxpayers.
  • Remove an impediment to home energy efficiency from federal mortgage policy.
  • Drive business and job growth in the construction and manufacturing sectors.
  • Lower utility bills for American households.
  • Expand the accessibility and affordability of energy efficient homes.
  • Appeals to a broad, diverse coalition.