The reasons for investing in an energy efficient home are legion. As green technology improves and prices drop, energy efficient homes become more competitively priced. With energy consumption accounting for up to 15% of home ownership, homeowners are making the obvious choice. The savings taken over the lifetime of the home mean that home buyers can opt for higher priced homes or for more expensive finishes.

Providing mortgages for homes that are energy efficient is also advantageous for lenders. A new study by the Institute for Market Transformation looked at 71, 000 ENERGY STAR-rated homes and homes that were not energy efficient to compare mortgage loan repayments: “Many have theorized that energy- efficient homes should have lower default risks than standard homes because the former are associated with lower energy costs, which leaves more money to make the mortgage payment. However, few empirical studies have been conducted due to limited data availability,” said Bob Sahadi, co-author of the paper. Along with Sarah Stellberg and Roberto Quercia, the team investigated the default risks of energy efficient homes compared to those that weren’t. They found homeowners who had ENERGY STAR-rated homes were 32% less likely to default on their loans.

From the study:

“This finding is robust, significant, and consistent across several model specifications. A borrower in an ENERGY STAR residence is also one-quarter less likely to prepay the mortgage. Within ENERGY STAR-rated homes, default risk is lower for more energy-efficient homes. The lower risks associated with energy efficiency should be taken into consideration when underwriting mortgages.

IMT has long been championing the inclusion of energy efficiency in mortgage loans. Cliff Majersik, executive director of IMT: “We’ve been talking about this for a while, but now we have the data to back it up. It’s time now to fix mortgage underwriting guidelines to consider energy efficiency.”

The organization supported the SAVE act which was a bill introduced to the senate in 2011 that encourages the Department of Housing and Urban Development to consider energy efficiency as a factor in mortgage guidelines.

Energy Efficient Mortgages are already available to prospective home owners. From ENERGY STAR: “An Energy Efficient Mortgage (EEM) is a mortgage that credits a home’s energy efficiency in the mortgage itself. EEMs give borrowers the opportunity to finance cost-effective, energy-saving measures as part of a single mortgage and stretch debt-to-income qualifying ratios on loans thereby allowing borrowers to qualify for a larger loan amount and a better, more energy-efficient home.”

While the energy savings of efficient homes are easy to verify, getting solid statistics for how they affect other aspects of the mortgage means that lenders can factor in these numbers when providing loans for prospective home owners. While green building technology improves with leaps and bounds, the financial sector has been slow to respond and studies like these help to create more progressive infrastructure.

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