Budgeting and Financing for Weatherization and Home Efficiency 

With the construction season upon us and the winter behind us, you may be considering ways to save money on heating bills – especially in light of rising costs for home heating fuel. Although some may suggest switching to new heating technologies, such as cold weather heat pumps, weatherizing your home is the first step toward savings. However, weatherization can be expensive, and paying for services and navigating rebates and incentives can feel overwhelming. Below are some tips and suggestions for homeowners:

CALCULATE YOUR ENERGY BURDEN

Before even reaching for the phone to contact a contractor, it is smart to figure out how much energy you are using by adding up utility and heating costs for the year. Calculate your energy burden (the percentage of your annual income spent on energy) by dividing your annual utility and heating costs by your gross annual income. An energy burden above 6% is considered high or unaffordable.

HIRE A QUALIFIED EXPERT

Once you have established what your energy burden is, it is time to contact the experts. Although some aspects of weatherization can be done as DIY projects, an energy audit of your home requires a professional. An energy audit is an invaluable tool because it assesses multiple aspects of the building. It identifies where the heat (or cool air) is escaping through air leaks in the building envelope, and can help you build an energy improvement plan or a scope of work. You can then prioritize projects to make the most cost-effective changes first and effectively seek estimates from multiple contractors.

Hiring a contractor with expertise and experience is key. Look for references up front and pay attention to certifications. You will want to work with a contractor who is certified by the Energy Excellence Network (EEN) or the Building Performance Institute (BPI) so that your project can qualify for a Home Energy Loan.

It is wise to get estimates from a couple of contractors. Contractors may offer alternative approaches to weatherization and should be able to explain energy savings based on each solution. If the costs and/or choices are overwhelming, consider removing projects from your list or working in stages to stay within your budget (e.g. insulate the basement one year, the attic the next, and the walls in the third year). An experienced contractor should be able to help you to consider materials and strategies that work for your budget and your home.

When comparing contractors, look for terms of the contract that will impact your financial planning. Cost overruns of 5% to 20% are not unusual with home weatherization. This is due to changes in materials costs as well as shifts in your scope of work. An example of a change in scope of work is a basement insulation project that expands to address seasonal moisture infiltration, replacing cracked clapboards, or unforeseen structural issues.

Make sure you understand all of the details of the project before your contractor begins work. For example, ask them about safety concerns: lead, asbestos, and vermiculite are three common health hazards found in older homes. Be sure to ask for copies of a certificate for liability insurance, and licenses for electricians, or plumbing, and gas. Also, be clear about whether permits are needed and decide who will pay for and file any necessary permits.

REDUCE COSTS

If you are planning to pay for some of the work through rebates, incentives, or grants; prepare to spend the money out of pocket, and then submit the invoices and materials bills for reimbursement. Some contractors require 50% of the project up front, and 50% at the time of completion.

DIY projects are a possible way to save money. Air sealing is paramount to any DIY weatherization project. Air leaks that are identified through a blower door test can be filled with caulk or silicone. Consider your level of comfort and your skill level when taking on DIY projects, and always consider safety first. Once you have estimates in hand, the next step is to build a budget and determine financing.

CONSIDER YOUR BUDGET

Can your income pay for the upgrades comfortably or will you need a loan? To figure out if you can afford a loan, your financial institution will calculate your debt-to-income ratio to assess what you can afford and help you access the best loan option.

Many energy efficiency projects qualify for specific energy loans; ask your financial institution and shop around for low interest rates. You may also want to check your credit score and credit history by requesting a free report at Annualcreditreport.com or through one of the three credit bureaus: Experian, TransUnion, or Equifax. Scores above 750 with good credit payment history are considered excellent. Check for errors, and if you need to improve your credit score, speak with a financial counselor. Keep in mind that credit scores may differ based on the bureau and score model used. Financial institutions usually price loan interest rates based on credit score, but they look at many factors in determining your eligibility for financing so be prepared to work with your loan officer to provide income verification documents and other information they may need to make a loan decision.

USE FINANCIAL RESOURCES TO SAVE MONEY

As an investment, weatherization and energy efficiency upgrades are wise choices no matter what your income level is. They can increase the value of your home, make your home more comfortable, reduce what you spend on heating, and reduce CO² emissions. And there are many great resources available to help you save money on your journey. Here is a list to get you started:

Weatherization Services—For income-qualifying Vermonters, free weatherization services are offered through the Community Action Agency Partnerships and Northeast Employment and Training Organization (NETO).

Savings—If you have money set aside, you could use it to pay for upgrades now that will save you money in the long run, and also improve the value of your home. (Caution: It is advised to keep three months’ worth of expenses available in case of emergencies such as loss of a job, a layoff, divorce, or other unforeseen events.)

Energy Specific Loans—Vermonters can access low-interest loans for energy efficiency through credit unions, banks, and the energy efficiency utilities—Efficiency Vermont, Burlington Electric Department, and Vermont Gas Systems.

USDA Loan or Grant—if you are over 62 years of age, you may qualify for a USDA grant of up to $10,000. USDA also offers a low-interest loan at 1% for income-qualified participants for up to $40,000.

Personal loan—You can request a personal loan from your credit union, bank, friend, or family member. Beware of the terms and the impacts on your budget, as well as terms for missed payments.

Home equity loan or line of credit—If you have paid a substantial amount on your mortgage or made a large down payment to purchase your home, you can borrow using the equity in your home either through a loan or by opening a home equity line of credit.  Interest rates tend to be lower for these options than for personal unsecured loans, but the application and closing process takes more time as you’re using your home as collateral.

Refinancing—If your mortgage interest rate is higher than current interest rates, consider refinancing your home for a higher amount than the current mortgage amount, at a lower interest rate. You can then take the difference as “cash out” to pay for energy improvements, which will allow you to cover your weatherization costs, save on heating now, and pay for the energy upgrades over a longer period. This strategy comes with risks and costs: housing values are variable and the value of your home could decrease if the housing market tumbles leaving you ”under water” on your mortgage. (Remember to factor in other costs: appraisal, points, and loan origination fees.) Mortgages also take more time to process and close, so this may be an option best suited to larger, more comprehensive projects where you benefit from energy savings over a longer period of time.

Note: Mortgage interest and energy upgrades may be tax deductible. Check with a tax professional for your unique situation. And utilize efficiency rebates, and incentives for products and services that increase energy efficiency.

Need help planning and paying for home energy efficiency upgrades? GreenSavingSmart can Help! Speak to a coach today.