Cost effective programs to add Energy Efficient Upgrades to your Home Purchase

This is the story of my hunt to find cost effective programs to add energy efficient upgrades to your home purchase.

Energy bills often represent the second largest monthly home ownership expense (after the mortgage payment).  Because most entry level homes don't have dual pane windows, energy efficient appliances, sufficient insulation or newer ducting to central heat and air (if they even HAVE central heat and air) and most entry level buyers don't have sufficient funds to pay for improvements out-of-pocket after buying a home, I set out to find cost effective programs to add these energy efficient upgrades to a home purchase.

My first discovery was the under-utilized FHA Energy Efficient Mortgage (EEM). This nifty program allows a buyer to include 100% of the cost of energy efficient improvements up to 5% of the property value (not to exceed $8,000) or $4,000, whichever is greater.  Since the FHA loan limit in Contra Costa county is currently $729,750, many home buyers could receive the maximum $8,000 for energy upgrades.  Eligible improvements include:

* Replacing a furnace or air conditioner
* Insulating an attic, crawl space and/or pipes and air ducts
* Replacing windows and/or doors

The FHA Energy Efficient Mortgage (EEM) is under-utilized because it requires a Home Energy Rating System (HERS) report.  I was surprised at how difficult it was to find a provider of this service.  I visited the California Energy Commission website and found a booklet titled  "What is your Home Energy Rating".  This booklet describes the HERS report process and provides a link to all of the Energy Commission approved HERS providers.  After calling 15 of the "approved HERS providers" in my area who had NO IDEA what I was talking about (most only provide Duct Testing services but not HERS reports), I was finally referred to Dave Hegarty of Duct Testers.

Dave Hegarty of Duct Testers not only provides HERS reports throughout California, but he was an absolute wealth of additional information.  Dave mentioned a new CHF Residential Energy Retrofit Program which is a 3% fixed interest rate 15 year loan to help homeowners in 16 counties (unfortunately, my county of Contra Costa isn't one of them) make energy efficient improvements to their home.  The program includes an additional grant of 15% of the cost of improvements (up to $1,250 per home) to further reduce the cost to the homeowner.  The combination of loan and grants can be used for a variety of home needs from caulking and sealing, insulation, new windows, water heaters, heating and air conditioning systems, even new roofing and full solar systems.

Dave then directed me to the Pacific Gas & Electric website to review their new Energy Upgrade California program that offers incentives to homeowners who complete select energy-saving home improvements on a single family residence. 

The PG&E Basic Energy Saving Home Improvement Package provides a $1,000 incentive* when this set of upgrades is completed:
* Air sealing
* Attic insulation
* Wrap the hot water heater pipe
* Install low flow shower heads (Contra Costa Water District provides low flow shower heads for FREE)
* Duct test and seal (ducts in the average California home leak almost 30%)
* Combustion Safety Test (pre-work and post-sealing work)

The PG&E Advanced Energy Saving Home Improvement package provides a $4,000 incentive* when this set of upgrades is complete:
* Measures in the Basic Package
* Wall insulation
* Hot water system upgrades
* Proper sizing of heating and cooling systems
* Energy efficient windows, cool roofs and other energy-efficient measures

*The required savings reduction will be based on a comparison of the home's energy usage prior to and following the completion of package improvements based on PG&E Home Energy Audit.

Contra Costa Water District offers free water saving devices as well as rebate programs for high efficiency washing machines, high efficiency toilets and smart sprinklers for landscaping.

As if all of this wasn't enough, there are also Energy Efficient Federal Tax Credits.  The amount of the tax credits vary by type of improvement.

Putting it all together.......I ran the numbers for a specific, small, entry level home in my area.  The home needs attic insulation, new dual pane windows, new central heat and air, high efficiency toilet, wrap the hot water heater pipe and low flow shower heads (free) for a total cost of $11,250.  The out-of-pocket cost to a buyer after utilizing the FHA Energy Efficient Mortgage and receiving the incentives, rebates and tax credits will be $1,275, slightly more than 10% of the total cost not to mention the ongoing monthly savings in utility bills! 

Here is another little tidbit that I need to mention, for this particular buyer I am also using the FHA 203(k) Streamline Rehabilitation loan in tandem with the FHA Energy Efficient Mortgage so the upfront out-of-pocket cost for the energy improvements will only be 3.5% or $394 (subject to the HERS report).  When the incentives and rebates are received, they will be money in the bank.

RECENT UPDATE:  Energy Efficient Upgrade Rebates for Contra Costa County