Own an Energy Star Home? Study Shows You’re Less Likely to Foreclose!

By Vernon Trollinger, May 22, 2013, Energy Efficiency, News

Owners of an Energy Star Home are less likely to Foreclose at Bounce EnergyBack in March, the Institute for Market Transformation (IMT) funded a study by the University of North Carolina Center for Community Capital to assess whether residential homes built to Energy Star standard had the same rate of mortgage default as non-Energy Star homes. The study took into account 71,000 single-family home mortgages (accounting for loan, household, and neighborhood characteristics), 35% of which were Energy Star (energy efficient) homes. The study found that an Energy Star home is 32% less of default risk than a non-Energy Star home.

“Why is this?” you might ask. Well, it seems that the energy savings accrued by using Energy Star appliances consistently provided enough of a financial cushion to help families meet their mortgage obligations. It sounds like a no-brainer, right? But current mortgage rules don’t make owning an Energy Star home very easy. After all, it really is about the money.

The Costs for an Energy Star Home

Homes built to Energy Star standards cost on average 3%-5% more than regular construction. That’s because additional insulation, qualifying windows, roofing, HVAC systems, and other such energy efficiency measures simply cost more than their conventional counterparts. For example, a standard 13 SEER rated 2-ton complete central air conditioning system might cost $2,000 to install and $580 a year to operate. A top-rated Energy Star model such as the Broan FS4BI with a 24.5 SEER rating could cost three to four times as much to install, but only cost half as much in a year to operate.

Problems with Owning an Energy Star Home

The costs of building an energy efficient home are included in the mortgage and raise the borrower’s debt-to-income ratio. The problem is that future savings from those energy efficiency measures are not included when the mortgage underwriter is determining if the would-be homeowner can afford the mortgage payments. As a consequence, Energy Star qualified homes are less affordable to many borrowers. A bill to address this market inefficiency had been introduced to the US Senate (S. 1737 Sensible Accounting to Value Energy Act of 2011), but it was swallowed by the Committee on Banking, Housing, and Urban Affairs and appears gone.

Saving Money with an Energy Star Home

One of the other trends the study hints at is that people who want an energy efficient home are more interested in a long-term commitment to that home, which also means they examine the cost of maintaining the home. With the cost of space heating and cooling consuming 50% of the household budget, reducing those expenditures can improve the future of all American families. Check out our post from last week to learn more about top-rated Energy Star appliances that can help you save money and lower your electricity bill.

Sure, the upfront cost for new Energy Start appliances might be higher than regular appliances, but you’ll save more money in the long run, since you’ll be using less electricity to power your home. And the less money spent on electricity bills means there’s more money for your mortgage each month, decreasing your chance of foreclosure.

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