One of the ways that you can increase the value of your home and even save money in the long run is to make energy efficient home improvements. These improvements increase the energy efficiency of the home, saving you money when it comes to heating and cooling. Energy efficient home improvements can be paid for with the help of home improvement loans if you do not have the ready money to make them.
FHA Energy Efficient Mortgage Program
The Federal Housing Administration (FHA) offers an Energy Efficient Mortgage (EEM) program to help homebuyers and homeowners lower their utility bills by incorporating the cost of adding energy efficient improvements into their loan. A qualified energy consultant (or home energy rating system) must establish the cost of the improvements and an estimate of the energy savings. Note that the cost of improvements must be less than the dollar value of energy savings to obtain this type of home improvement loan.
An FHA EEM can be used for one-unit or two-unit homes, but not for co-ops. The maximum amount you can borrow for the cost of energy efficient improvements is 5% of the property’s value (up to $8,000) or $4,000 ― whichever is greater. There are also income requirements that apply.
Federal Tax Credits for Energy Efficient Home Improvements
You can offset some of the cost of your home improvement loan by taking advantage of federal tax credits. If you make energy efficient home improvements by the end of 2010, you can claim a tax credit for your efforts, which can help reduce the impact of your home improvement loan on your budget.
You may be able to claim a tax credit for 30% of the cost of smaller energy efficient improvements (up to $1,500) ― including duct sealing, replacing the water heater, insulating windows, or upgrading the cooling/heating system. If you add solar panels, geothermal power, or a wind turbine, you may claim a tax credit for 30% of the cost of those improvements with no limit on the tax credit amount.
In addition to federal tax credits, many home improvement loans come with interest that is tax-deductible. That means you can get another tax break for using a home improvement loan to fund your energy efficient upgrades.
State and Local Programs for Energy Efficient Home Improvements
In addition to federal tax credits for energy efficient home improvements, many states and local governments offer their own incentives. Some states offer grants and state tax credits for green home upgrades ― meaning that you can use the same project to benefit in more than one way.
Some cities offer special home improvement loans for energy efficient upgrades, and some municipalities provide interest-free home improvement loans to those who upgrade their windows. These types of loans may be repaid through the utilities department, along with the monthly power statement. There are also certain utility companies which offer rebates to customers who add insulation. All these programs are in addition to any tax credit or tax deduction you get from the federal government.
If you have been thinking about increasing the energy efficiency of your home, there are various options to help you finance the cost of adding those improvements.