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Many people agree that financing the cost of energy efficient improvements makes a lot of sense. With financing, you repay the lender a little each month out of the savings on your utility bill. You get to enjoy the comfort and convenience of your home improvements NOW, and still maintain a positive cash flow.


Energy efficiency improvements and products can be financed when buying a home, refinancing or borrowing to cover home improvement costs. The EnergyCheckup™ Report provides a list of prioritized and cost-effective home improvements, as well as an estimate of what each of them will cost.

A Typical Example

Here's an example of a typical case where borrowing money to finance energy efficiency improvements can make a lot of sense:

Joe and Amy had a EnergyCheckup home inspection on the house they were planning to buy. The inspector discovered two big energy saving opportunities. He recommended that they replace the air conditioner and the electric water heater. They already knew that the old air conditioner needed to go. The seller had agreed to take care of it, and would credit them $800 based on a quote from a local contractor for a standard efficiency model. But the inspection report estimated that if they replaced the air conditioner with an EnergyStar rated model (instead of the standard efficiency model) and switched to a gas water heater, their energy bill would go down by over $100 a year.

Here's what the numbers looked like:

Options Contractor Cost Annual Energy Bill
1. Replace Air Conditioner Only (w/ standard model) $800 $650
2. Replace Air Conditioner (w/ EnergyStar model) and Install a High Efficiency Gas Water Heater $1130 $545
Cost Difference + $330 - $105/yr

They decided that Option 2 made more sense. They would get higher quality models, add to their home’s resale value, and recoup the cost of the more expensive models in just over three years ($330 / $105/yr = 3.1 years). They decided that financing the difference in a loan was a wise investment:

Financed Amount: $330 @ 8% interest over 4 years = 48 payments of $8.06/month.
Energy Savings: $105/yr = 12 months at $8.75/month
Positive Cash Flow (First 48 months): $8.75/mo - $8.06/mo = $0.69/mo.
Positive Cash Flow (future): $8.75/mo or $105/yr.

In this example, the homebuyers financed the entire cost of the more expensive models with the energy savings.

Many Options Are Available

A large number of financing options are available: personal loans, home equity loans, credit union loans, insurance policy loans, bank loans and savings loans. Some contractors are also willing to secure financing.

Some banks and lending institutions offer Federal Housing Administration (FHA) loans for home improvements. The Department of Housing and Urban Development maintains an online list of FHA approved lenders. FHA requires that the lender approve any contractor arranging for an FHA loan, but does not guarantee the work or the contractor. Beware of anyone who tells you that the FHA approves the contractor's work or endorses the contractor. For guidelines and links to help you select a contractor, visit our Get It Done! page.

Certain lenders offer another option known as Energy Efficient Mortgages. An Energy Efficient Mortgage (EEM) can help you borrow more money to finance energy efficient improvements or to qualify for a more expensive home which is already energy efficient. The main advantage of an EEM is that it may help you to qualify for a larger loan. This is based on the lender’s assumption that improved energy efficiency will result in lower utility bills, which in turn will make more of your income available for mortgage payments.

To qualify for an EEM, you need to get an EnergyCheckup (or other official Home Energy Rating) both before and after the improvements are made. For more information on EEM Lenders and EEM Facilitators in your area, see the “Find Financing” section of your EnergyCheckup™ Report.

For More Information

For help in determining how to get the best loan, visit an online service like www.BankRate.Com or get impartial credit advice from the Federal Consumer Information Center.

For more information on Energy Efficient Mortgages, check out these resources.

  • The "Energy Efficient Mortgage Home Owner Guide" was prepared by Countrywide Home Loans, Pacific Gas and Electric Company, and the U.S. Department of Energy, to provide an introduction to energy efficient mortgages. www.ase.org/consumer/eemguide.htm
  • The "Get the Facts About The Energy Efficient Mortgage" website was created by H&L EnergySavers to give an overview of the EEM process. www.energyefficientmtg.com
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