A Green Idea for Saint Patrick’s Day
How about this for a green idea? Add underwriting guidelines to the mortgage lending industry that allows for substantiated increased value for more energy efficient homes. What do I mean? Well let’s look at a hypothetical example. Let’s take a typical American home with traditional systems with a market value of $300,000. The buyer puts down 20% and finances $240,000. The principal and interest payment would be $1325 a month (30 year fixed at 5.25%). But now let’s take that same home and add some energy saving systems (solar, water heater, windows, appliances, water gathering, etc.). If we added $30,000 of systems and could add that value to the market value, we would have a new value of $330,000. So now, the buyer puts down 20% and is able to finance 80%, or $264,000. The new principal and interest payment would be $1458 a month. That would represent an increased payment of $133 a month. But what if the combined savings per month from the added energy efficiency was $200 a month? Now, let’s say we add a tax rebate for the increased down payment required (up to a maximum of let’s say $10,000) of $6,000. The buyer now has a more energy efficient home with no additional money out of pocket with green systems that will benefit him for many years to come. And the savings would increase as the cost of energy increases.
I know this is a substantial hurdle, but one new layer of underwriting guidelines for conventional loans could help fuel a much faster (and healthier) economic recovery of our country. The guidelines today do not address the savings incurred by the homebuyer who buys a more energy efficient home. The amount of utility payments is not even figured into the debt to income ratio. And there is no real way that the inherent increase in value is recognized from an appraisal perspective (the new “green” value). After all with cars, the added value of a hybrid is built in to the price of the car: pay $50 more a month to save $60 in fuel.
If our mortgage lending guidelines simply allowed us to add appropriate, substantiated value to a green home, compared to the same home without the added efficiencies; we could create a country of far more energy efficient homes, and put a lot of people back to work. And I might add, back to work in an industry that is sustainable and makes sense for the long run. This is an underwriting guideline challenge; the tax rebate is obviously a different matter.
Your comments are always welcome.
Happy Saint Patrick’s Day!
tom@thomasjbeno.com
