SAVE Act Would Include Energy Costs in Home Value
Although energy costs are typically the second highest cost of home ownership after mortgage payments, loans for home buyers usually don’t reflect how energy efficient a house is. However, that may change if a new bill gets passed. The Sensible Accounting to Value Energy or “SAVE” Act (S.1737) would use a home’s expected energy cost to help determine mortgage eligibility.
“It’s a national policy that won’t cost taxpayers one dime nor expand government one inch,” said Alliance President Kateri Callahan. “While the price of the house will be a little higher to cover the builder’s up-front costs for energy efficiency, the homeowner will save more in utility bills. Both come out ahead.”
The SAVE Act: Why It’s Needed, How It Works
The SAVE Act, introduced Oct. 19 by Sens. Michael Bennet (D-Colo.) and Johnny Isakson (R-Ga.), would fix current banking rules that don't for account for energy efficiency upgrades when determining a home's value.
If approved, the SAVE Act is expected to spur energy-saving upgrades to existing homes and construction of new, energy-efficient homes. The switch could save U.S. homeowners an estimated $1.1 billion in energy costs by 2020 [.pdf], according to the American Council for an Energy-Efficient Economy (ACEEE) and the Institute for Market Transformation (IMT).
Mortgage Underwriting Guidelines
Traditionally, criteria such as location, square footage, tax burden, comparable sales statistics and aesthetics are used by appraisers to estimate how much a house would sell for on the market. The appraisal is a crucial step in determing the mortgage that a potential buyer can secure.
The SAVE Act would require federal mortgage agencies’ standards to account for the energy savings of an efficient home in determining mortgage caps. This would allow a lender to increase the allowable mortgage loan amount for energy-efficient homes relative to similar inefficient homes.
Because federal mortgage agencies like Fannie Mae, Freddie Mac and the Federal Housing Administration account for over 90% of loans, changes to their standards are expected to be adopted for the vast majority of mortgage loans nationwide.
Efficiency and Mortgage Payments
When calculating a borrower’s ability to make mortgage payments, mortgage lenders normally account for the principal, interest, taxes and cost of insurance.
By incorporating projected energy costs of a home into this calculation (normally larger than all other expenses aside from the mortgage principal), banks will more accurately grasp borrowers’ economic situation, and those seeking to buy homes of better-than-average efficiency will be able to secure larger loans. Likewise, homeowners who invest in energy efficiency improvements will be rewarded when they sell their homes because more potential buyers will be able to afford a larger mortgage than would be the case for a less efficient, but otherwise comparable home.
Benefits for Homeowners, Home Buyers & More
The SAVE Act would:
- Help homeowners who have made efficiency upgrades by reflecting those upgrades in resale values.
- Help home buyers afford the upfront cost of an efficient home, thereby allowing them to take advantage of improved comfort and lower energy bills.
- Help home builders make homes more efficient. Because the current appraisal system does not count the value of energy efficiency, home builders can get stuck eating the cost of investments in energy efficiency.
- Help lenders reduce foreclosures through more accurate underwriting that reflects the unique energy costs of different homes.
- Help job seekers by spurring 83,000 jobs [.pdf] by 2020 in energy-efficient construction, manufacturing and home renovation, according to ACEEE and IMT.
- Help the environment and energy security because home energy use is a leading source of air pollution, oil use and electricity demand.
What Can You Do?
The bipartisan SAVE Act has created new allegiances between homebuilders, energy efficiency advocates, businesses and environmental nonprofits. But it needs your support, too. To ensure that the bill makes its way into an enforceable act, you can:
- Share your thoughts with us on Twitter (@ToSaveEnergy) and Facebook, and in the comment section on ase.org (just scroll down to the bottom of our news articles).
- Contact your senators and representatives, and ask them to support the SAVE Act.
More on the SAVE Act
- SAVE Act fact sheet by the Alliance
- SAVE Act section-by-section bill summary by the Alliance
- SAVE Act statement by Callahan
Alliance Communications Intern Sumayal Shrestha contributed to this article.