Stretch your Client’s Buying Power with Green Mortgages

September 26, 2022 | By: Meg Garabrant

Home energy costs have outpaced inflation by a significant margin in the past three years. According to the U.S. Bureau of Labor Statistics, piped gas has increased 27% and electricity has increased 12% outpacing overall inflation rates for all goods and services. 

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With the passing of the Inflation Reduction Act, there will be a significant expansion of energy efficiency upgrades in homes across the U.S. The up-front rebates and tax credits will allow homeowners and renters most affected by rising utility costs to retrofit their homes to counteract both high costs. BIPOC and low-income communities are the hardest hit by utility rates as reported in the ACEEE report, “How High Are Household Energy Burdens?



In addition to the Inflation Reduction Act (IRA), many lending institutions have recognized this need to finance energy efficiency upgrades and are providing ways for buyers to finance improvements to reduce energy usage as part of their mortgage. Freddie MacFannie MaeFHA and VA are leading the way on this new type of financing, followed by many local programs offered by lenders and credit unions. These programs provide consumers a way to finance energy efficiency upgrades to the home they would like to purchase before they have made the renovations. The cost of increasing energy efficiency is added to the cost of the mortgage.  

Green mortgages also finance green-certified homes and increase a buyer’s borrowing power. The verification provides documented lower annual operating costs, allowing lenders and specialized green underwriters to allow for a higher debt-to-income ratio. This green underwriting “stretched ratio” allows the borrower more money to be applied to the mortgage, instead of reoccurring monthly utility expenses.

Many of the green mortgages require an energy audit. The borrower must obtain a home energy assessment to set a baseline of a home’s performance. National standards like Home Energy Score and RESNET’s HERS Index® provide a verification of a home’s assets that can be captured in the Green Building Registry® and then shared through an API with MLSs across the US. This provides both a record for prospective buyers in the future as well as a verified record of any energy efficiency upgrades or renewables that national mortgage lenders can later use to verify Green Mortgage-Backed Securities (MBS).

The need for home energy audits as well as a verified record of any energy efficiency upgrades will grow in importance as the Inflation Reduction Act stimulates enormous growth in home performance upgrades. It’s critical these assets are recorded for future homebuyers and the lending market. 

The Green Building Registry (GBR) has aggregated the third-party certification and energy rating data and reports to make it easy for real estate practitioners to promote the energy efficiency of homes that have already completed one of these energy audits. 

Many Multiple Listing Services are beginning to offer information about green certifications and green home features as part of their MLS databases. Unfortunately, this is still a nascent effort. The Real Estate Standards Organization (RESO) has developed green fields within their data dictionary to be incorporated by MLSs. In conjunction with the expected explosive growth of IRA-related energy upgrades and the growing demand for Green MBSs, it is essential that MLSs upgrade their data fields in alignment with the RESO green field standards so this home performance data can be included in listings, and rightfully positively impact the value of the home at a future sale.

Green Building Registry information includes when verified data is available; estimated energy costs, green certifications, energy labels, and the Appraisal Institute’s Residential Green and Energy Efficient Addendum to help improve the accuracy of an appraisal. For more information about the Green Building Registry, watch an overview video HERE