Your one stop shop for green loans – Forbes Advisor

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Did you know that the average American family spends $ 3,100 on energy and water bills each year? Not only is this a big blow to your wallet, but it’s also a double whammy for the climate. Our homes themselves are responsible for about 20% of greenhouse gas emissions in the United States. By installing energy and water saving devices in your home, you can save both money and the environment – a benefit for everyone.

To pay for these projects, however, you might need a green loan or a green mortgage, also known as an energy efficient mortgage (EEM); you can also use a personal loan. With these financing options, you can buy existing green homes or upgrade regular homes to become green homes. Learn more about green loans and climate-friendly home improvements to understand how to approach your project.

What is a green loan?

The term “green loan” describes a loan that you take out to retrofit an existing home with water and energy saving features, or to purchase a new home that already has these options. If there are specific loans called green loans, you can use a traditional personal loan or a green mortgage, or EEM, to finance your project.

Here are three types of loans you can use to pay for projects that lower your energy and water bills.

Green loans

True green loans are commonly used for one-time, climate-friendly home improvement projects. For example, rather than doing a complete home renovation, you can simply use a green loan to install solar panels or add more insulation to your home.

Although true green loans are not very common, you can find them at some banks and credit unions. For example, the Vermont State Employees Credit Union (VSECU) and the Community First Credit Union (CFCU) are two institutions that offer green loans to their members.

Personal loans

Instead of a green loan, you can also take out a Personal loan. This is because you can use personal loans for almost anything including green renovations.

You can easily find and apply for personal loans by banks, credit unions and online lenders. However, you should always compare personal loans and green loans because you won’t know what terms you can get for each loan until you shop around.

Green mortgages

Green mortgages are commonly known as Energy Efficient Mortgages (EEMs) and they are easier to find than your typical green loan; you can even get an EEM through the US Department of Veterans Affairs (VA) or the Federal Housing Administration (FHA).

The two main agencies that buy conventional mortgages—Fannie Mae and Freddie Mac-Also allows EEM. Fannie has a dedicated green mortgage program (HomeStyle Mortgage), unlike Freddie (he still accepts EEM loans). Plus, you may even be able to get a conventional EEM through your neighborhood lender.

How green loans work

Green loans, whether you use a traditional green loan or a personal loan, are designed to help pay for energy and water efficient renovations.

If you opt for a true green loan, some institutions will require you to work with a licensed installer, only to purchase equipment that meets certain standards or meets other requirements. Personal loans, on the other hand, don’t require you to meet the same standards. However, both types of loans have a similar function: receiving the funds as a lump sum and repaying the loan in monthly installments with interest.

Whether you opt for a green loan or a personal loan, you can use your funds to pay for the following improvements:

  • LED lights
  • Triple glazed windows
  • Energy efficient doors
  • Water-saving devices
  • Programmable thermostats
  • Low-flow showers and toilets
  • Add more insulation to your home
  • Solar panel arrays and battery configurations
  • Tankless water heater or solar water heater
  • Landscaping, such as rain gardens or windbreaks

You can sometimes use green loans to pay for things that increase your home’s resilience to natural disasters, like renovating your home for safety against earthquakes, hurricanes, or wildfires.

How Green Mortgages Work

If you need to do more than a one-time project, like buying a home, you’ll need to turn to a green mortgage. Thanks to a mortgage, you can receive a certain amount of money for a fixed term, say 30 years, and repay that amount through monthly payments with interest.

You can use green mortgages, or EEM, to do three things:

  • Buy an existing property that is energy efficient
  • Buy a non-energy efficient property and convert it to an energy efficient property
  • Convert your existing home to an energy efficient property using funds from a refinancing of collection

How to get a green loan

If you want to make your home more environmentally friendly, now is the time to get a loan to help pay for those upgrades. Whether you want a green loan, a personal loan, or an EEM, you will need to understand the application process to obtain the necessary financing.

The application for a green loan or a classic personal loan generally follows the same process:

  1. Check your credit score and eligibility
  2. Shop and Compare Lenders
  3. Submit your application online or in person
  4. Wait for approval
  5. Pay off your debt in monthly installments

Obtaining an EEM, on the other hand, is a bit more comprehensive, especially if you plan to renovate an existing property. You will typically need to follow these steps:

  1. Check your credit score and eligibility
  2. Shop and Compare Lenders
  3. Assess the current value of the house
  4. Have a home energy audit performed – which confirms the home is or will be energy efficient after upgrades are complete, and outlines estimated monthly energy savings and the value of energy efficiency measures, according to Energy Star
  5. The lender will take into account the current value of the house and the cost of the upgrade and give you a one-time loan for the purchase price plus the cost of the upgrade.
  6. Repay the loan with fixed monthly payments

Benefits of green loans

  • Lower interest rates: Depending on the program, your lender may offer a rate reduction for taking out a green loan. You may be able to get a better rate on a real green loan than if you had taken out a personal loan or a traditional home loan, for example.
  • Higher loan limits: Green mortgages can help you borrow more that the house is currently worth, so you can use the extra money to make energy efficient upgrades.
  • Cost savings: Green loans can help you lower your utility bills. LEED (the gold standard for energy efficiency) certified homes save an average of 15% on energy costs. Considering the average American family spends $ 3,100 on energy and water bills each year, that translates to an average of $ 465 ($ 3,100 x 0.15) in savings per year.

Disadvantages of green loans

  • Requires customized solutions: Unless you’ve done an energy assessment of your home, it can be difficult to know where your money will have the most impact. If you buy an expensive solar panel but live in a shady forest, for example, other options might serve you better.
  • Interest can void your savings: Some green projects offer marginal savings over a long period. If you’re paying interest on a loan, it could negate those savings, so you’ll need to do the math carefully.
  • May require additional documents: Green loans sometimes require more documentation than traditional loans. For example, an EEM may require you to do an energy assessment of your home, which is not necessary with traditional mortgages.

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