Q: A bank in my area is advertising "green" mortgages, which it claims can increase a buyer's borrowing power while also helping the environment. How do these loan programs work?
A: Various "green" home-loan programs have been offered for years, but banks have stepped up their marketing efforts for the mortgages recently as energy prices kept rising and concern about global-warming grows.
Green mortgage programs - sometimes called "environmentally friendly" or "eco-friendly" loans - vary from one lender to the next. Most of the programs offer home buyers larger loans or discounts if they purchase a new, energy-efficient house or make energy-saving improvements to an older property that they have agreed to buy.
Consumers who choose green loans often can borrow more money than they could with a conventional mortgage because the bank will consider their future savings on utility bills as extra "income" that will be available to make their home-loan payments.
Let's say that you agreed to purchase an energy-efficient house that has dual-pane windows, heavy-duty insulation or a heating or cooling system that meets the federal government's strict Energy Star requirements. Even if those improvements would lower your overall utility bills by only a modest $50 a month, the projected savings would allow you to borrow about $10,000 extra by choosing a 30-year green mortgage instead of a traditional loan, according to a spokesman for the nonprofit Energy Programs Consortium in Washington, D.C.
Most banks that make green loans would give you similar breaks if you instead decided to purchase an older house and make such energy-saving improvements yourself.
Several lenders are offering bonuses to lure green borrowers, too. Those lenders include nationwide giants Citigroup Inc., J.P. Morgan Chase and Bank of America, all of which are offering up to $1,000 off their closing costs to buyers who "go green." Many buyers, as well as existing homeowners who make certain types of energy-saving improvements, also qualify for special state and federal tax credits as well as rebates or reductions from their appliance manufacturers and utility companies.
Applying for a green mortgage often entails completing some extra paperwork, and sometimes also requires a special "energy audit" performed by an inspector who is preapproved by the lender. Savvy borrowers ask their bank to pay for the cost of the inspection, which can save them a few hundred dollars more if the lender agrees to foot the bill.