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New bill would factor energy costs into home value

Consumer Reports News: November 07, 2011 04:24 PM

A new bill introduced by Senators Michael Bennet (D-CO) and Johnny Isakson (R-GA) would make residential energy costs a key part of the U.S. mortgage process. The Sensible Accounting to Value Energy (SAVE) Act would direct the Department of Housing and Urban Development (HUD) to update its underwriting and appraisal guidelines to ensure that home loans backed by the mortgage industry's three big players—Fannie Mae, Freddie Mac, and FHA—take into account how much it costs to heat and cool a home.

Under the current system, mortgage lenders use PITI (short for principal, interest, property taxes and insurance) to determine debt-to-income ratio, which is supposed to indicate whether borrowers will be able to make their monthly payments. Energy costs are nowhere in the equation, even though they can easily top taxes and insurance.

Besides preventing home buyers from purchasing more house than they can afford, SAVE would reward homeowners who have made significant energy efficiency improvements by requiring appraisers to include the resulting long-term savings in the total value of the home. The Alliance to Save Energy, one of several advocacy groups supporting the legislation, estimates that for a home for that uses 30 percent less energy than the average, the added value would be more than $10,000.

Although SAVE enjoys strong bipartisan support in the Senate, comparable legislation has yet to be introduced in the House. But don't let that stop you from making energy-efficiency upgrades to your home. For one thing, they'll result in lower utility bills, saving you in the short run. And even if SAVE hasn't been signed into law when you go to sell your home, you can get your house rated by a professional energy auditor (some utilities do them for free or offer rebates) and ask the appraiser to make any reported savings part of the value of your home.

Daniel DiClerico

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