FINDING GREEN4GREEN

Building a green home is getting a lot more typical, but it’s far from the norm… especially when securing a loan from a bank. We started our project during the beginning of the mortgage crisis and even though we could afford our project and have a solid credit score, we went through hell to secure a loan.

Our neighborhood is a perfect place to build our sustainable home. We hope that when the house is complete our property should be in the middle of the home value curve in our area. But the reality is our home costs a little more per square foot than the typical vinyl-sided, drywall box, and to the banks this does not compute. The biggest issue is banks are just beginning see sustainability as an amenity.

We started working with a large lender that financed our first mortgage. They took us through a lengthly process that resulted in loads of frustration, anger and interest rates that where ridiculous. After this we talked with about 5 other banks. Each one claimed their process would be easy, but it was not. We finally turned to Jeff Hillman at Valesco Mortgage for his help. Jeff assisted one of Shelter’s clients who recently built a great sustainable modern house. Between Jeff’s expertise and my ability to help the appraisers understand the project, we secured a great loan after about 4 months of searching. Now that Erin and I have plunged down the painful path of banking here are some tips for readers considering building their sustainable dream home:

Q: How much should you spend on your new home?

A: No more than 30% of your income.

Q: What is the price point for your property?

A: Look at the houses in the area and find comparable homes. Don’t expect the bank to do it. Have a list of sale prices and addresses ready for the appraiser.

A: Keep in mind there are different types of rates. If you spend more than $417K, in most states, this is considered a jumbo mortgage. You frequently pay a higher interest rate than those commonly advertised. If you’re planning on building a home that costs $420,000, try to figure out a way to bring down those costs, because you’ll save a lot of money in the end.

Q: What amenities will help your property values in the future?

A: Some neighborhoods lend themselves to very specific things. Make a list and see how the sustainable features you’re interested in can fit into that formula.

Q: What incentives are available for sustainable improvements in your city, state and region?

A: Check your state’s department of commerce website. Also look at The U.S. Department of Energy website for federal incentives available for sustainable improvements : http://www1.eere.energy.gov/financing/consumers.html

There's no doubt that the sub-prime residential mortgage crisis cast a shadow over the economy.
I believe that despite the immediate market and credit concerns, the outlook for green real estate is great. Green technology and design get better and more affordable every day. There is increasing interest and experience in bringing green technologies to existing buildings. Trends show tremendous growth over the next several years. McGraw-Hill Construction, one of the construction industries leading experts, estimates that as of 2006, green buildings represented approximately 5 percent of all structures. That's expected to double by 2010, and the marketplace for green building construction is expected to reach approximately $30 to $50 billion annually by 2010, versus $11 billion in 2006. So we are looking at some very significant growth rates. That means real profit for those building green now.

The moral of the story is hang in there. Just because you a hit a few walls doesn’t mean your are wrong. The truth is the banking industry is a little behind right now and they’ve got a long way to go for sustainable financing. You need to be prepared to speak the bank’s language. It can be really helpful to find someone in the mortgage industry experienced in sustainable homes. If that’s not possible, remember that banks are looking at every project as a potential risk. Don’t focus on the experimental features in your home. Focus on the sustainable features as luxury items, this is what will give you a higher price per square foot. Things like energy efficiency help, but luxury features really increase your value. For example, in our project our extremely sustainable kitchen became a custom-designed, European-style kitchen. Have a set of basic plans and elevations ready with a list of these types of features for the bank.

If you’re interested in learning more, my colleague and friend John Dwyer wrote a great article on financing a sustainable home for Residential Architect Magazine.