Building Green – Got Money?

No? Got to get a mortgage.  Or at least try and try again.

We needed to place a mortgage on our new home, not just for construction but a permanent mortgage.  As part of our planning, I started exploring construction loans with two general sources: first tried our long-time bank, then our long-time credit union and then USAA (who offers mortgages as well as insurance); secondly, spoke with a local bank here in Silver City with a good reputation, Western Bank.  Our credit union proved not to be an option because they aren’t local enough and USAA, the same.  They both could help with the permanent mortgage, but that wasn’t my immediate concern – or so I thought.  One phone call to our long-time bank sadly convinced me that customer service wasn’t their immediate concern! When it came time to move from planning to financing, we went with Western*.

Western could provide us with the construction loan, but they don’t hold permanent mortgages; they resell them onto the secondary market.  This is typical of almost all banks, whether local or national.  It’s how lenders like Citi Mortgage and the infamous CountryWide became and remain such giants in the mortgage market.  It’s also where our challenges began.

We had no problem qualifying for a mortgage to bridge the difference between the cost of the house and our assets from the sale of our previous house in MD. We were close to the ideal borrowers for a mortgage: no debt to speak of; home ownership for most of our adult lives; good credit rating; and enough assets to make 30% or better down payment; that after paying off the land purchase. Looking for a typical 30-yr fixed, nothing exotic. So where was the problem?!

The problem was green.  In retrospect, I’m still stunned that there’s such a discrepancy – nay, a chasm between talking green and doing green when it comes to financing.

The first loan application to a secondary mortgage company produced the following results, although mostly this is a reconstruction (forgive the pun) of events based on a couple of phone calls.  The appraiser picked up the house plans and went to work. He did a very good job of researching recent comparable sales and general market conditions.  Appraisals are, of course, based on what’s sold – comparable sales – not what’s on the market or what other homes cost to build.  The market sets the value.  Therein lay the first problem: NO green comparables. We anticipated that this could have a negative impact on the house valuation – or at least be neutral. 

Because there had been no homes sold in this region in the last 2-3 years with passive solar design, solar photovotaics or solar thermal, there was no value that could be assigned to those features.  Same with the high performance windows. Same with the other elements of design that set the house apart from typical construction.  Not that there were no homes in the region that have these features – just that none had been sold.  Again, the market sets the value.

The appraisal was submitted to the lender as “conforming with the neighborhood.” That meant that the size, style and construction (frame/stucco, without regard to the green elements) is similar to the other homes in the general neighborhood.  The solar PV and solar thermal was noted on the appraisal along with the other key green design elements, even though no dollar value was added.  If I understood the situation correctly after the fact, the bank contacted the appraiser and instructed that the appraisal be changed from “conforming” to “non-conforming.”  And then turned down the loan application as being “non-conforming”! Ouch.  Don’t explain to me that lenders are very risk averse right now, though that might be the truth.  Don’t tell me that they only want to loan money against “plain vanilla” houses, though that may also be true.  Something about this whole deal smelt!  Yes, truly fishy!! Actually, downright illegal, given that appraisals are supposed to be blind, such that the local bank can’t recommend a particular appraiser and the lender can’t direct the appraisal.  But this was the story as I got it.

I did a lot of internet research and spent hours on the phone calling banks around the state and even FreddieMac (or was it FannieMae).  The reason I spent so much time is that everywhere I looked on the internet, I found references to “green mortgages.”  I was determined to find that green needle.  What I found instead was:

·        Build Green New Mexico’s website listed two lenders that purported to make green loans.  I learned through personal phone calls that one was out of business and the other only made construction loans in Santa Fe and sometimes Albuquerque. 

·        There was and is lots of information on the internet about Energy Efficiency Mortgages, sponsored by HUD/FHA (EEMs) a program started in 1995 by FHA to help homeowners finance the cost of the energy efficiency technology, such as solar pv, solar thermal and wind.  The program is supposed to apply to both new home and renovation/additions to existing homes.  I also found a lot of information on the National Association of Realtors website.  However, after a number of calls to lenders and banks, I found no one – not a single one who’d ever heard of EEMs.

·        When I called FannieMae (or was it FreddieMac) they refused to talk with me, the consumer. I was told that they only talk to lenders. Not what I wanted to hear.

Those are the highlights of several hours on the phone. Meantime, Western worked diligently to present us with options.  The best option was to have them submit our loan package to another secondary lender.  Which entailed another application, another appraisal and another appraisal fee.  Different appraiser this time.  Thankfully, different results. Although the second appraisal still didn’t assign any market value to the solar, etc, at least the appraisal came in at a value that allowed the mortgage to be guaranteed.  Thus, Western was able to proceed with the construction loan.

And all it cost us was a 4 month delay!  Well, plus the additional appraisal fee.

I’ve since learned that in other areas of the country there is an effort to assign value to the technology of green construction.  In places like Santa Fe, the appraisal forms and even house listing forms are now including check boxes for green elements like solar pv, solar thermal, etc.  That means that a database of market value will begin to be built on how much a house with those elements sold for. Which in turn means that lenders will begin to appraise the value and loan against the value of the green elements.  And maybe even EEMs will make a debut somewhere other than on government programs and websites.

About time, I’d say.

*Western’s reputation is well deserved.  They have worked with us every step of the way, going far above and beyond to help get us financing.  What a difference from the national bank where we and I have had accounts since I was knee-high to my dad and through 4 mergers!

Building Green – It starts with Imagining, Planning, and Researching

We made two decisions almost simultaneously: move to New Mexico and build a ‘green’ home.  At the time we made those decisions, we were living in Maryland in the DC (extended) suburbs.  I worked for a federal agency (still do) and Nick worked for the DC government.  We both had some-times-horrific commutes; we lived in an out-for-me culture; and our home, which was rural when we purchased it in 1987, was being overtaken by suburban-exurban sprawl.  Our community went from a few hundred households to a master plan of 10s of thousands.  Time to leave.

Because DC was one of the first cities to start focusing on green design for the city’s low- and moderate-income housing stock, Nick attended the 2007 annual conference of the Green Building Council and was inspired by the keynote address, given by Bill Clinton. He carried a new passion for green design not only back to his work for the city government but to our own planning as well.  Didn’t have to work hard to convince me!  I’d been hanging out with too many conservationists – on the East Coast, called environmentalists – through my own work; I understood a little of the challenges we face with the environment, if not energy consumption.

We started to investigate the ins and outs of environmentally- and energy-conscious green design. And discovered, first of all, there’s not a lot of agreement about what ‘green’ means!  Green can mean Energy Star appliances but leaky windows and roof.  Or it can mean designing for a Leadership in Energy and Environmental Design (LEEDS), sponsored by the Green Building Council,  Platinum level or a Build Green New Mexico (BGNM), sponsored by the NM chapter of National Association of Home Builders, Emerald level.  One extreme to the other.  If you google ‘build green’ you get 394,000,000 – yes, that 394 million – hits.

So you make a choice.  We chose BGNM.  Both BGNM and LEEDS qualify for NM state tax credits, the amount of credits depending upon the level for which the property certifies.  BGNM Emerald, the highest, earns up to $18,000 based on house size in state income tax credits, plus some federal credits. I think LEEDS Platinum would earn about the same.

Do you have to go for some certification?  Absolutely not.  Do you have to do it all to have a ‘green’ home? Absolutely not.  Can you find just the right amount of ‘green’?  Absolutely possible.    Planning is key, planning including researching design options and figuring a budget.

And the budget’s the thing

It’s sometimes said that building green is a rich-man’s game.  It sure can be.  Especially if you design to standards like Energy Star, LEEDS or BGNM.  Doesn’t have to be, though.

We could have worked with a designer or architect, or a knowledgeable builder to identify the key elements that we wanted to focus on in our design.  Such considerations as building south-facing for passive solar gain.  Making sure the house didn’t leak energy by paying attention to thermal bridging.  Following the builder around with a caulk gun (not literally J) to make sure that the necessary cuts in the building envelope were sealed – cuts for electric outlets, light sockets, recessed lights.  Do you know that if you hold your hand over an electric outlet or switch in a lot of homes, you can actually feel cold air coming in! Maybe not choosing recessed lights, which allow a tremendous amount of energy loss!  And yes, choosing to purchase Energy Star appliances and Energy Star-rated light fixtures. 

We did look at our budget and made some difficult choices such as giving up a two-car garage for a one-car carport.  Delaying other aesthetic choices until later, in order to afford the green elements required by BGNM.  Or maybe not even required, but our preference, like solar photovoltaic and solar thermal for hot water.

We have spent hours on the internet and, Nick, pouring over a number of green-build books.  We read everything from energy efficiency research to the types of house construction to types of insulation and wood stoves and solar tubes!

And of course, part of our planning was to find an architect familiar with the aspects of building green.  Then to research the building trades here in Silver City, both general contractors/builders and trades.  Who has built ‘green’ before?  When they say they build ‘green’ what does that mean to them?  Who’s willing to provide the focus on detail that any certification program requires?  If the prospective builder talks more than listens when you bring up ‘green’ design and construction, if the prospective trades charge 30% more for a ‘green’ installation, then I’d say, run the other way.  Enthusiasm on the part of the designer and builder for building ‘green’ is required, I think, to make it work.

A not-so-small planning thing: once we had an agreement with our builder, we held a one-day meeting with our architect, the builder, the major trades, e.g., plumbing, electrical, framing, and the BGNM rater to review all the choices, to make compromises and to get advice and especially to look for more budget-friendly options. 

The planning hasn’t stopped.  We meet with the builder formally every other week to review the construction progress.  We meet more often as required to keep on top of tracking the BGNM requirements.

By the way, I think you can also renovate green.  I even think there are certifications, tax credits and other benefits to renovating green. 

Questions from previous posts:

We are not installing a standard HVAC (heating and air conditioning forced-air system).  Because the house is so highly insulated and designed for minimal thermal bridging, we are able to use a much smaller and more efficient energy recovery system.  This system uses smaller ducts and has a heat/cool exchanger.  It uses a small, quiet fan that runs full time, circulating air throughout the house, completely exchanging the air in the entire house several times an hour.  In the summer, we will throw a switch for “night-sky cooling” which will take the heat out of the circulating air and replace it with our natural 6,000-foot-elevation cool, clean air.  There is a filter, as well, to filter dust and other particulates before sending the air through the system.  In the winter, heat will be supplied by electric baseboards in each room, with a wood stove purely for the romance of it!

Building Green -- Getting Started

It’s not easy being green.  Think Kermit the Frog!

Just so, it’s not easy building green.  Over the next few months, as our home goes up, I’ll share some tales about the trials and tribulations – and the successes and satisfactions of building a green home.

Here are the basics:  one and half stories; typical frame and stucco construction; 3 bedrooms and 2 baths plus a great room consisting of living area, dining area and kitchen. Screened porch (I’m a southerner by heritage – we always have screened porches); deck; front porch. 5 acres just outside of town, but with city water.

Here is the green:  super insulated R-40 walls and R-60+ in the roof; southern exposure with passive solar design.  That means, by the way, that all main-floor windows face south with a roof overhang that allows sun to penetrate the rooms in the winter, but blocks the sun in the summer, limiting the heat gain when least wanted. Concrete floors provide heat mass to retain heat in the winter.  Solar photovoltaic to provide electricity; solar thermal for hot water; wind generated-electricity a possibility in the future.  The house will be grid-tied and so will feed electricity into the PNM grid, providing an income source rather than expense for as long as PNM keeps paying for electricity (don’t get me started on that one yet).  Double pane Anderson windows with high wind rating and altitude package – but not low e!  Low e and passive solar are somewhat contradictory.

 Here is the green challenge:  Build Green New Mexico or BGNM.  BGNM focuses on energy efficiency, green construction and environmental attention.  BGNM is a NM state program sponsored by the National Association of Home Builders and provides from $9-18,000 in tax credits against current and future income tax.  And we’re shooting for Emerald level, the highest possible.  If and when we attain it, we could be only the second house certified in the state to be certified at the Emerald Level.  There is one home just certified in Santa Fe; we don’t know how many others in the state are currently building, but we’re not in a competition to find out!

Build Green New Mexico criteria start with the selection of the lot on which to build and the community surrounding the lot and carries through construction, resource efficiency, energy efficiency, water efficiency, indoor environmental quality, and ending with homeowner, builder, contractor and community education! BGNM takes a huge commitment and a real team effort to achieve. 

We’re off on this odyssey to build a home that suits the landscape and sits gently on the land and that will be the home in which we (hope to) die! We’re trying to balance the costs of building green against our finite budget; to balance the infrastructure against aesthetics, like solar pv against getting to choose not-the-least-expensive tile; to meet the criteria of BGNM without making us all crazy with details but without missing details that would cost us points in the end.  And weighed into that mix, we’re trying to incorporate common-sense aging-in-place features and now, with the Miller fire raging, take into account creating defensible space that in some ways runs contrary to the low-impact requirements of Build Green New Mexico.

Come along on our odyssey and when the house is done, c’mon down and sit on the porch!