Energy efficient homes make for less risky mortgages

It’s a well-known fact that energy efficient homes save their owners money but now a new study shows that they’re also better mortgage investments.

Homes with lower HERS Index Scores (a measurement of energy efficiency) were deemed as low mortgage default risks, and mortgage default risks were 32 percent lower on average with Energy Star-labeled homes.

This is according to a report by the University of North Carolina’s Center for Community Capital, and the Institute for Market Transformation. The report is based on a study using a sample of 71,000 mortgage loans, compiled from across 38 states and the District of Columbia.

The sample was restricted to single-family, owner-occupied homes whose mortgages were contracted during 2002-2012. RESNET supplied both the addresses and the homes’ HERS Index Scores to the University of North Carolina for the purposes of this study.

The lower risks related with energy efficient homes should be taken into consideration when underwriting mortgage loans. According to the study, Fannie Mae, Freddie Mac and FHA should encourage underwriting flexibility for mortgages on energy efficient homes, and also promote energy efficiency to consumers and their lenders.

According to the study, Congress should take into account the report’s findings when deliberating on legislation to improve the accuracy of mortgage underwriting used by federal mortgage agencies. Congress should also ensure that energy costs are considered during the underwriting process.

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