A home energy rating is a score that recognizes the energy efficiency of homes. Lenders use home energy ratings as an objective way of helping more homebuyers qualify for special financing.
Ratings can apply to new or old homes and are based on thorough energy audits, during which a professional rater will 
test the home for airtightness, sufficient insulation, and efficiency of appliances. Furnaces, water heaters, and other heating and cooling equipment will be tested, and the rater may assess indoor air quality as well.
If the home is determined to be highly energy efficient, it can help buyers increase their budget ? in light of expected utility savings, lenders are more likely to give larger mortgage loans on energy-efficient houses.
RESNET?s Home Energy Rating System Index
The Home Energy Rating System (HERS) Index is one way of scoring a home on energy efficiency. In this system, established by the Residential Energy Services Network (RESNET), a low number indicates a very energy-efficient home while a higher number indicates room for improvement. A rating of 100 represents a new home built to conventional standards, while zero represents a home which uses zero energy.
The HERS Index is one of the most common and widely-recognized rating systems and is used by many lenders to determine eligibility for energy-efficient home loans. RESNET is a respected rating organization, founded by the National Association of State Energy Officials in cooperation with Energy Rated Homes of America. Its purpose is ?to develop a national market for home energy rating systems and energy efficient mortgages.?
U.S. Department of Energy?s E-Scale
The U.S. Department of Energy?s EnergySmart Home Scale, or E-Scale, is a similar rating system based on RESNET?s system. Like the HERS Index, the E-Scale uses 0 as the measure of a home which uses no energy and 100 as the measure of a home which meets typical new-construction efficiency standards. The EnergySmart Home Scale sets 70 as the Builders Challenge number, in order to encourage builders to make new homes that are 30 percent more energy efficient than those built to code. The U.S. Department of Energy drew from the HERS Index to build their E-Scale, and recommends RESNET?s certified energy rating professionals to assess home energy performance.
What is an Energy-Efficient Mortgage?
In addition to the satisfaction of doing something good for the environment, the growing availability of energy-efficient homes offers growing opportunities for homebuyers. Energy-efficient mortgages (EEMs) allow borrowers to credit energy savings, or expected reductions from standard utility bills, toward what they can pay on their mortgage each month. This means more buying power for families considering energy-efficient home purchases. RESNET reports that ??a recent analysis by the Environmental Protection Agency (EPA) confirmed that energy efficient mortgages can have a dramatic impact on increasing the opportunities for homeownership. The analysis found that an average of 6.8% more families would be able to qualify for a mortgage through an energy efficient mortgage.?
Including the expected energy savings in their debt-to-income analysis lets buyers expand their budget and get into a home which might be better than they thought they could afford, and EEMs are backed by federal mortgage programs including the Veterans Administration ( and the Federal Housing Administration. Freddie Mac and Fannie Mae, two companies which secure conventional loans, both support EEM loans. The U.S. Department of Housing and Urban Development defines an EEM as something which ? helps homebuyers or homeowners save money on utility bills by enabling them to finance the cost of adding energy efficiency features to new or existing housing as part of their FHA insured home purchase or refinancing mortgage.?
What is an Energy Improvement Mortgage?
While most EEMs apply to new construction that?s been built to green standards, there is another financing opportunity for homebuyers who wish to make energy-efficiency improvements to an existing home. With an energy improvement mortgage, or EIM, a certified energy-efficiency rater will help determine which improvements will be most effective, then the lender finances both the home purchase and the planned improvements. These improvements ? new windows, a better furnace, or replacement insulation, for instance ? are paid for out of an escrow account. This type of mortgage can allow buyers to borrow a little more than they would otherwise, because the bank can count on being paid by a borrower with lower monthly utility bills. You can even use energy improvement mortgage loans to improve a home you already own, according to the U.S. Department of Energy. Since energy-efficient homes have higher resale value, sellers and lenders as well as buyers benefit when they build low-energy homes.
How do I Choose a Home Energy Rater?
RESNET, which designed the HERS Index, has a rating standard of practice that defines what they expect their home energy raters to test and what services they expect their raters to provide. Many contractors provide energy rating services and several local and federal organizations certify home raters, but it?s important to talk to your lenders early in the financing process to make sure you choose a rater they recognize as qualified to perform the inspection. You can find RESNET energy raters and auditors by using their search tool. You can also search for an inspector through other state and local organizations. Whomever you choose, be sure his or her credentials meet the requirements of your mortgage lender.
Types of Home Energy Assessments
There are a range of assessments that can help rate a home?s energy efficiency, and not all are the same. The most basic service offered by RESNET-certified inspectors is the home energy survey, which is an assessment of utility bills and a quick look at the home?s performance. It is not usually in-depth enough to satisfy lenders for energy efficient mortgages.
A more in-depth investigation of a home?s efficiency is the building performance audit, which includes the use of high-tech equipment to see exactly where a home is losing heat. Thermal cameras, blower doors, and various other tools help give a very clear picture of what needs improvement and what those improvements might cost.
A home energy rating, according to RESNET?s standards, can?t be issued until the building performance audit has been completed and some computer simulations have been run. These simulations show expected financial advantages of making the auditor?s recommended improvements and help generate an accurate Index number. Many lenders will agree to finance a more expensive home if they know it has been through the entire process of receiving a favorable HERS Index number.
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