How to cultivate a 'green mortgage'

The other key difference with ‘green’ mortgages is that they help borrowers qualify for larger loans. That is because the estimated utility cost savings are added back to income, creating additional borrowing power.

On the surface, encouraging people to borrow more than they initially intended to may not seem like a great idea in the aftermath of the housing bubble. But the utility savings should offset any extra loan costs, and the additional amount typically amounts to a few thousand dollars, not a significant stretch.

"Because our monthly energy cost will be significantly less than for a comparable home built with conventional building materials, the future expense of living in the home will be less," explains Charles Heppner, who along with his brother Timothy is building a green home in Chicago with green financing.

In a way it is like buying an energy-efficient hybrid car. You may pay more up front, but given enough time, the savings realized at the pump should justify the higher initial cost, not to mention the satisfaction that comes from reducing your carbon footprint.

Incentives and rebates
Also, green homes are magnets for rebates, tax breaks and cash incentives as many states, municipalities, manufacturers, utilities and even banks chip in to make financing a greener home more attractive and affordable.

To encourage its customers to build Energy Star compliant homes, Bank of America offers up to $1,000 off its closing costs, according to Michael Kelly, first mortgage product manager with Bank of America in Minneapolis. Green lending remains a niche area for the bank but one that is receiving more emphasis.

Jeffrey Cole, founder of Atlanta-based myEnergyLoan.com runs a national program through HomeFirst Mortgage to create packages of incentives, rebates and financing for his developer and residential customers’ green projects. "Generally, the greater the energy efficiency expected, the greater the potential savings available to the borrower," says Cole.

These incentives and rebates vary significantly from town to town, and over time. The Energy Star Web site maintains links to its partner’s current programs. Similarly, the Database of State Incentives for Renewables and Efficiency provides a state-by-state rundown of available programs and their details.

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