ENERGY-EFFICIENT
HOMES
POLICY

This presentation will analyze the potential
effectiveness and benefits of EnergyEfficient Homes.
ISSUES

A 25% reduction of foreign oil imports would
cause the price of oil to increase.

This in turn would cause the cost of heating a
home (that uses oil for its heat) to increase.

Also, the price of gas at the pumps would
increase, creating greater monthly expenses for
all who drive.

Energy efficient homes create other benefits not
related to oil.
CONCLUSIONS

Energy efficient homes can dramatically
decrease the cost of maintaining the
average home.

Energy efficient homes also have the
benefit of using renewable energy sources,
which conserves existing energy resources.
BACKGROUND

Industries aside, our homes are the chief
consumers of many energy sources.

The amount of energy wasted just through poorly insulated
windows and doors is about as much energy as we get from the
Alaskan Pipeline each year.

The amount of electricity generated by fossil fuels for a single
home puts more carbon dioxide into the air than two average
cars.

Almost every home in the United States
could be powered by renewable energy
of some kind to a greater or lesser
extent.

Converting existing homes to energyefficient homes, and building only new
homes which are energy-efficient, would
result in a myriad of benefits, both long
term and short.
EXISTING HOMES

Improvements to an existing home, to make it an
energy efficient home, focuses chiefly on
ensuring that every aspect is properly installed,
insulated, and all equipment is energy efficient.
The major areas of concern are:







Building Envelope
Space Heating and Cooling
Water heating and supply
Waste water
Appliances
Garbage
Lighting
NEW HOMES

Construction of a new home can take advantage of a
concept known as “Whole Building Design.”

“Whole Building Design” takes an integrative approach to
building design so that all elements of the building help
achieve an optimal energy performance. The building has
to interact effectively with the outdoor environment — a
concept known as climate-responsive architecture.

“Whole Building Design” combines Energy-Efficiency
with Solar Technologies to boost energy savings, and it
reduces the amount of energy required to operate a home
compared to conventional houses.
NEW HOMES (CONT.)

The “Energy Efficiency” aspect of “Whole
Building Design” is concerned with the
same areas as mentioned with Existing
Homes.

The “Solar Technologies” incorporated into
the “Whole Building Design” involves the
use of Passive Solar Design and Solar
Thermal Technology.
NEW HOMES (cont.)

Passive Solar Design

Is the technology of heating, cooling, and lighting a building
naturally with sunlight rather than with mechanical systems.

Some design features include large south-facing windows and
building materials that absorb and slowly release the sun's heat.

It can also involve the use of Photovoltaic (PV) technology. PV
is basically "solar electricity" that results from converting
sunlight into energy.

PV systems help preserve the Earth's finite fossil-fuel resources
such as coal, oil, and natural gas. It also helps reduce air and
water pollution associated with these energy sources.

Incorporating passive solar designs can reduce heating bills as
much as 50%.
NEW HOMES (cont.)

Solar Thermal Technology
 Is the use of solar water-heating systems.
 Solar water-heating systems use collectors generally
mounted on a south facing roof.
 These collectors heat water either Passively or Actively
(Active being the most energy efficient).
NEW HOMES (cont.)
External “Whole Building Design” Features
NEW HOMES (cont.)
Internal “Whole Building Design” Features
THE BIG QUESTION

Relatively few homes (existing & new
construction) across the U.S. are energy-efficient
homes.

Considering the environmental benefits that an
energy-efficient home creates, why haven’t more
people chosen to make their homes an energyefficient home?
The Human Barrier

Reluctance on the part of consumers to undertake
the conversion of their homes to energy-efficient
homes can be summed up in one word:
MONEY

The upfront costs that are required to make the
conversion are often too great a barrier for the
average consumer to overcome.

Some energy efficiency improvements involve little
or no implementation cost.

However, there are also improvements that can cost a
great deal of money.

Replacing a heating system can cost up to $5,000 in a
large house or even more if you are converting from
electricity to another energy source.

Installing new windows, while very beneficial to
your home and the environment, can be a financial
strain to implement.
Overcoming Human Barriers I

Knowledge of the long-term benefits and monthly
utility savings that an Energy-Efficient Home can
provide.

Knowledge about Energy-Efficient Home
financing programs (government backed &
conventional loan programs).
THE BOTTOM-LINE

The average homeowner spends close to $1,300 a
year on utility bills.

But an energy-efficient home—with such features
as proper insulation, high efficiency heating and
cooling systems, and energy-efficient windows—
can lower utility bills by 10 to 50 percent.

This would all be reflected in a myriad of benefits,
both long term and short.
Where the Money Goes
FINANCING AN ENERGY
EFFICIENT HOME

Because an energy-efficient home is costeffective, there are financing programs available
from mortgages to home improvement loans,
which allow more people the opportunity to live in
such a home.

Consumers can benefit from energy-efficient
financing whether buying, selling, refinancing, or
remodeling a home.

People looking to buy an energy-efficient home,
can qualify for a better, more comfortable home
because with lower utility costs, they can afford a
larger mortgage payment.

Most Energy-Efficient financing programs will
encourage you to have an ENERGY RATING for
your new or existing home, which will tell you
and the lender how energy efficient it is.

A rating typically involves an inspection by a
professional energy rater who is certified under a
nationally or state accredited Home Energy Rating
System (HERS).

An energy rater will inspect the energy-related
features of a home, such as:
 insulation levels
 window efficiency
 heating and cooling systems
 air leakage

After inspection, the inspector will generate a
report that includes the home's energy rating along
with an estimation of annual energy use and costs.

To help qualify for most energy-efficient
financing, the report usually must show that the
home is energy-efficient or that any recommended
improvements are cost-effective and will save
more money than would be needed to be borrowed
to install them.

While calculating whether a borrower qualifies for
a mortgage, a lender can recognize these savings
and add the cost of the improvements into the
mortgage.

Or, if the home is already energy-efficient, the
lender can stretch the debt-to-income qualifying
ratio (a borrower's monthly payment obligation on
long-term debts divided by the borrower's net
effective income or gross monthly income).

An energy rater will inspect the energy-related
features of a home, such as insulation levels,
window efficiency, heating and cooling systems,
and air leakage.

Energy-Efficient financing is offered through
either government-insured or conventional loan
programs.

There are 2 types of Energy-Efficient Mortgages:
1. For a New Home
2. For an Existing Home

You can purchase or refinance a home that is
already energy-efficient, or you can purchase or
refinance a home that will become energyefficient after energy saving improvements are
made.
ENERGY EFFICIENT
FINANCING PROGRAMS
Government Insured

U.S. Department of Housing and Urban Development
 FHA Energy-Efficient Mortgage
 FHA Section 203(k) Rehabilitation Mortgage Insurance
 FHA Energy-Efficient Home Mortgage
 FHA Mortgage Increase for Solar Thermal Systems
 FHA Title I Property Improvement Loan Insurance
Government Insured (cont.)

U.S. Department of Veterans Affairs
 The U.S. Department of Veterans Affairs (VA)
guarantees mortgage loans for veterans.
 It can be used to purchase or refinance a home along
with the cost of making energy-efficient improvements.
Conventional Programs

Most of the national lenders who offer energy-efficient
financing operate through one of the following programs.




ENERGY STAR® Mortgage
Fannie Mae
Freddie Mac
E Seal
DETAILS
HOW AN EEM SAVES MONEY
Standard Mortgage
Energy Improvement
Costs
Appraisal Value
New EEM
$3,000
$100,000
$103,000
(add cost of improvement)
Down Payment
$10,000
$10,000
Mortgage Amount
$90,000
$93,000
$614
$634
$0
$(50)
$614
$584
P&I
Energy Savings (Monthly)
Total Monthly Payments
HOW AN EEM INCREASES BUYING POWER
For a standard home without energy improvements:
Buyer's total monthly income
Maximum allowable monthly
payment 28% debt-to-income ratio:
Maximum mortgage at
90% of appraised home value:
$3,000
$5,000
$840
$1,400
$132,900
$221,500
$3,000
$5,000
$900
$1,500
$142,400
$237,300
$9,500
$15,800
For an energy-efficient home:
Buyer's total monthly income
Maximum allowable monthly payment
30% debt-to-income ratio:
Maximum mortgage at 90% of
appraised home value:
Added Borrowing Power Due
to the Energy Efficient Mortgage:
THE
ENERGY
EFFICIENT
MORTGAGE
PROCESS
SIMPLIFIED
Overcoming Human Barriers II

It has been suggested that the only way to
“encourage” widespread use of EnergyEfficient Homes is through Governmental
Legislation requiring energy-efficiency.
Existing Legislation

Most existing legislation is done at the state level.

The Model Energy Code (MEC), published and
maintained by the International Code Council
(ICC), has influenced most legislation.

While not all states have a requirement regarding
the energy efficiency of homes, most states have,
in some form, adopted provisions of the Model
Energy Code (MEC).

Other states have adopted the MEC as
recommended practice but have no statewiderequirement that all new construction use it.

The MEC contains energy efficiency criteria for
new residential and commercial buildings and
additions to existing buildings.

The MEC covers the building’s ceilings, walls,
and floors/foundations; and the mechanical,
lighting, and power systems.

While some states have adopted the MEC without
modification, some states have adopted one of the
MEC editions with state-developed amendments.

In an effort to harmonize building codes across
America, the MEC was revised to become the
International Energy Conservation Code (IECC),
first printed in 2000.
ENERGY CODE STATUS
BY STATE
As presented at the NFRC Spring Membership Meeting, Regulatory Affairs Committee
Snowbird, UT, April 2002
FEDERAL INVOLVEMENT

Federal involvement in the effort to encourage
energy efficient homes has chiefly come in the
form of tax incentives.

Example: The Omnibus Federal Energy Bill
Passed by the House on August 2nd
 Awaiting approval by the Senate

The Omnibus Federal Energy Bill
This Bill contains several tax credit provisions
aimed squarely at residential real estate.
 It provides federal tax credits for homeowners
who install energy conservation items such as:

New insulation
 Energy-efficient windows
 Doors
 Solar hot water
 Photovoltaic equipment


For owners of existing homes the credit will be
20% of the amounts spent on “Qualified
Energy Efficiency Improvements", up to a
maximum credit of $2,000.

Tax credits are more valuable to taxpayers than
deductions because they are subtracted dollarfor-dollar off the bottom line of a taxpayer’s
federal tax bill.

There is a separate credit available for the
installation of solar and photovoltaic energyproduction equipment.

These tax credits are similar to the credits for
conservation, with a maximum allowable credit
of $2,000 during a tax year.

Under this Bill, home builders and contractors
also get a shot at tax relief.

When they install energy-efficient heating and
cooling systems in a new home they are
constructing, they may be able to qualify for up
to a $2,000 credit per home.

These new federal tax credits are expected to
be extremely popular.

The congressional Joint Committee on
Taxation estimates that the home improvement
incentives alone will lead to $1.6 billion worth
of tax credits to homeowners in the coming
decade.

The solar and photovoltaic credits are
estimated to put $125 million back into home
owners' pockets during the same period.