Des Moines Business Record
Sunday, November 26, 2006
Home mortgages starting to favor 'green'
By Sarah Bzdega
sarahbzdega@bpcdm.com
As builders, suppliers and government officials have pushed for greater use of green building practices the past few years, many lenders, appraisers and real estate agents have been hesitant to follow the trend.
Some home mortgage lenders, however, are starting to recognize the value of energy-efficiency improvements when creating mortgage packages as demand for these improvements continues to grow significantly.
Wells Fargo & Co.'s third annual U.S. homeowners study, for example, found that given $50,000 for home improvements, 24 percent of respondents would "dream green," by purchasing insulation, double-paned windows, solar panels and energy-efficient appliances. This was the top choice for the 1,361 people surveyed, followed by 12 percent who wanted a state-of-the-art chef's kitchen and 11 percent who wanted a luxury master bedroom suite or master bath.
"It wouldn't have been on top of the list a few years ago," said Lynnae Hentzen, executive director of the Center on Sustainable Communities. "It says a lot about how this is valued."
When considering energy-efficiency improvements, most mortgage companies are creating packages that allow the homeowner to take out a larger loan. This enables the homeowner to fund more expensive improvements, such as replacing a low-efficiency heat system with a geothermal heat pump, which can cost $10,000 to $15,000.
"Normally when buying a home, you are trying to fit the mortgage payment in based on percentage of income," said Curtis Klaassen, manager of the Iowa Energy Center's Energy Resource Station in Ankeny. "Typically guidelines don't consider the cost of energy, so if you have an energy-efficient home, you don't reap any benefits of it in mortgage.
"The idea [with an energy-efficient mortgage] is that a reduced monthly energy cost gives you more buying power. With more buying power, you can usually finance some more money for the home, certainly enough to offset a minor addition for geothermal, which may allow you to buy more expensive features in the home."
By offering these kinds of mortgages, lending institutions could make energy-efficiency improvements more affordable. "A good package could make the difference between someone choosing to take a jump and go to geothermal," Hentzen said, "as opposed to not."
Hentzen and Klaassen also believe that these mortgages are to the lender's advantage, because as energy prices rise, a homeowner with a less efficient system could have trouble affording the monthly mortgage payment.
Many national lenders, including Wells Fargo and Countrywide Financial Corp., have offered energy-efficient mortgages for several years, Hentzen said, because green building has taken off faster in other areas of the United States than in Central Iowa.
Wells Fargo Home Mortgage has offered this type of mortgage for 13 years, said Stuart Tyrie, vice president of Wells Fargo Home Mortgage's National Builder Division. Although it was popular when it first came out, interest tapered off in the 1990s. Now, he said, people are regaining interest as utility bills have risen.
Homes that meet certain energy-efficiency standards, such as the Home Energy Rating System and National Association of Home Builders' Thermal Performance Guidelines, might qualify homeowners to receive a larger loan through Wells Fargo's program. The company also offers renovation loans for these kinds of improvements, and Tyrie said the list of green products people could purchase using these loans has expanded over the past six years.
Mortgage Innovations LLC is one local lending company that has started offering mortgage packages that look at energy-efficiency improvements, especially geothermal pumps. However, Charles Chedester, vice president of the company, said typically the clients that ask to look at it have done some research.
Chedester believes installing geothermal pump is to the homeowner's advantage, because the homeowner begins to see the direct impact of utility bill savings after a couple of years and because having an efficient heating system is an asset when selling the house. Tax breaks and rebates help cover a portion of the installation cost.
But, he said, adding the cost of a geothermal pump to a home mortgage might not always be the best option for a homeowner. "It's a matter of showing how that works and play with the numbers and see what the options look like," Chedester said.
Hentzen also warns consumers to be careful with these kinds of mortgages, which don't reduce interest rates, but rather allow a homeowner to borrow more. Some people, she said, don't need such large loans.
Though most lenders are starting to consider energy-efficient mortgages, they still do not see a value in other aspects of green building such as resource conservation and indoor quality. Part of the problem is that the value of such improvements is not as easy to measure as energy efficiency, which has a direct impact on utility bills.
"A lot of work is going into new homes to make them healthy homes, more green, more sustainable," Klaassen said. "Yet, these features do not have a direct cost impact and many times not a direct financial payback, even though they are more environmentally friendly."
Since 2004, Wells Fargo has worked with the American Lung Association to support its national Health House program, which provides a standard for cleaner indoor environments through builder and consumer education. Tyrie, who is passionate about the project because he has an asthmatic daughter, said some materials such as low-vapor-emission carpeting, insulation and drywall, as well as special air condition systems, are more expensive, but better for the homeowner. Wells Fargo provides some builder training as well as financial assistance to builders to encourage these improvements.
To offer more financial assistance for additional green building practices, Tyrie said, would require Wells Fargo's secondary markets to recognize the investment value of green mortgages.
Klaassen and Hentzen also said it would take a greater demand for more than just energy-efficiency improvements.
"We would encourage homeowners and consumers to ask for it," Hentzen said. "They're not going to take time to put effort into creating these until there are enough consumers asking for it. Work with the lender to see how you can get some creative financing going in order to afford some of these things that you know are going to add value." |
