Improving home energy and water efficiency is a meaningful way to help tackle two of today's most pressing concerns: housing affordability and society's impacts on the environment. But financing these improvements can be a challenge. Freddie Mac helps make it easier. And we're working to do even more.
Your home is considered affordable if you spend no more than 30 percent of your income on the mortgage or rent, including utilities. When thinking about how much home you can afford, it’s easy to forget the second part of that equation – especially when renting, because at least some utilities often are folded into monthly rent charges.
Lowering utility costs lowers overall housing costs and can help preserve affordability. For homebuyers and owners, it could mean being able to absorb a somewhat higher monthly mortgage payment, to put funds aside for home maintenance, or to spend or save otherwise. From a rental viewpoint, property owners could trim operating costs and pass savings onto renters; and if renters pay separately for their own utility usage, they'll pay less. In effect, less of your money will seep through your windows or flow down your drains, and more will stay in your pockets and be available to spend elsewhere.
This can make a huge difference to households earning low or moderate incomes in particular. For a large and growing number, housing costs consume much more than 30 percent of take-home pay and bite into spending on other necessities like food, clothing, and health care, let alone nice-to-haves.
The broader societal effect of cutting energy and water consumption, including using renewable energy sources, is better care and stewardship of our environment. Literally everyone benefits from that.
All of Freddie Mac is committed to promoting these efficiencies.
Our commitment in the Single-Family business to promoting energy-efficiency improvements isn't new. Given changes in the market and society, though, they're moving more into the spotlight.
Under our existing guidelines, our lenders may offer options for financing such improvements as part of a home purchase or a cash-out refinance. On some loans, lenders also have the flexibility to factor the potential energy-cost savings into borrower debt-to-income and housing-expense ratios. With such a savings boost, more low- and moderate-income households might be able to take on homeownership more comfortably.
Importantly, this financing can be combined with any of our fixed- or adjustable-rate mortgage offerings – even our low down payment Home Possible® products – with terms up to 30 years. This makes the process simpler and more straightforward for the borrower and for the lender. There's no limit on the cost of the efficiency-related items, as long as total financing doesn't exceed our mandated loan limit and meets our loan-to-value requirements.
And we continually look for ways to better support this part of the market. We're working with stakeholders across the industry to find opportunities to refine and enhance responsible financing for energy-efficiency home improvements. This includes the solutions we offer and the education we deliver to lenders, housing professionals, and homebuyers and owners to help them understand what's available and make informed decisions.
Our aims are to bring more of this type of financing into the market and to help promote and preserve housing affordability, while benefiting our environment. The added focus encourages us to think even more creatively about expanding and enhancing our efforts on this front. We're excited about the possibilities.
If you're interested in knowing more about our support for improving energy efficiency at home and how you might take advantage of it:
Find out how Freddie Mac promotes energy efficiency in multifamily rental properties in the next article in this two-part series.