Photo of 4 increasingly tall stacks of coins beside a jar full of coins, each with plants sprouting out of the top and the caption "5 Ways to Finance Home Insulation Upgrade"

If you are looking to enhance the energy efficiency of your home, then one of the first things you need to pay attention to is the quality of insulation in your living space.

Proper insulation is one of the few things that will have a huge impact on the amount of energy you use every month, since year-round climate control is extremely energy-intensive. But it you might need help to pay for an insulation upgrade if you’re already paying high utility bills every month.

Keeping your home comfortably warm during the winters – and cool during the summers – requires a lot of power. And while you can’t get rid of the furnace or the air conditioner completely, proper insulation will enable you to minimize their usage and lower your energy bills.

Why Insulation Is Important

Uninsulated (or improperly insulated) houses waste tremendous amounts of energy on heating and cooling. This is true even if you have highly efficient, state-of-the-art furnaces and air conditioners in your home.

Without proper insulation, the heated (or chilled) air will simply escape through the walls or the gaps around your windows and doors. Moreover, the outside air will get into your home, decreasing the effectiveness of the furnace or the air conditioner.

For this reason, you need to ensure that your walls, ceiling, floors, windows, and doors are well insulated. If you live in one of the colder parts of the U.S., then insulating the walls will immediately reduce your energy needs by a significant margin. Without insulation, most buildings lose up to 40 percent of their heat through the walls.

A further 25 percent of heat is lost through the ceiling, while the gaps in the windows and doors are responsible for the rest. (Uninsulated flooring might also play a role, but it is rarely a major contributor to heat loss.)

With each of these components of the building envelope insulated properly, the energy efficiency of the home will increase multifold.

Properly insulating your living space will also enable you to get the most out of the renewable energy features of your home. Installing geothermal heat pumps and solar panels on your property might decrease the carbon footprint of your household, but only a well-insulated home will allow these eco-friendly elements to function optimally.

Choosing Your Insulation Upgrades

Before you start an expensive home insulation upgrade, you must first determine which parts of your house are most in need of better insulation. Some of the things you should check for are:

  • Cracks and gaps around the windows
  • Walls that are abnormally cold or damp
  • Drafts under the doorways
  • Frozen condensation on the windowpanes

After you have done all you can, you will need to engage the services of a qualified energy inspector, to help you uncover and understand the more technical aspects of home insulation. Some of the technical details that the energy efficiency auditor will check for are:

  • The presence of proper roof ventilation
  • The thickness of insulation in the walls and the attic
  • Air leaks in the doors and windows
  • The amount of insulation in the ductwork
  • The age and condition of your furnace and water heater

You can typically schedule an energy efficiency and home insulation audit through your energy provider, for a nominal fee. Such an audit is especially important if you happen to live in an older house, since older homes are usually more in need of insulation upgrades than newer ones.

Photo of a colorful row of older houses that probably need an insulation upgrade.
Older homes may be long on character, but they’re often short on insulation.

Financing Options For Home Insulation Upgrades

Proper home insulation is an extremely important – albeit often overlooked – aspect of energy efficiency. No amount of renewable energy or efficiency improvements are going to give you the net-zero home you’ve always dreamed of without the right insulation measures.

(For the uninitiated, a net-zero home is simply a house that produces all its own energy locally, meaning that it produces at least as much energy as it consumes during a given period of time.)

The problem with high-quality insulation upgrades, however, is that they can be quite expensive and time-consuming. For instance, if you live in an older house, you might want to add a layer of insulation to your walls. This will make your living space much more comfortable and significantly reduce your utility bills. But despite its usefulness, the process of insulating old walls is both complicated and costly.

If you own an older house, then in all probability, you already pay higher-than-average energy bills to keep your household running. These high energy bills might even keep you from saving up to pay for expensive insulation upgrades.

Without proper insulation, your energy requirements remain high and the bills just keep getting steeper. It is a vicious circle of insufficient insulation leading to higher utility bills, and the higher bills in turn preventing the necessary insulation upgrades.

This is why many government organizations and private utilities offer loans (and other types of financial assistance) to help homeowners like you install much-needed insulation upgrades. These financing options are especially designed for people who want to improve the energy efficiency and environmental sustainability of their homes.

Before you start planning your home insulation upgrades, however, be sure to check which financing options are available in your area, and which of them you qualify for.

PACE Loans

Property Assessed Clean Energy (PACE) financing is a type of loan for which homeowners can apply if they want to install energy efficiency and insulation upgrades. This loan can also be used for renewable energy installations and disaster resiliency improvements. PACE loans can be used to finance home improvement and insulation projects like:

  • Air sealing
  • Solar photovoltaic systems
  • Seismic retrofits
  • Energy-saving cool roofs
  • Water conservation systems

PACE programs are location-dependent, typically facilitated by the local government and enabled through state legislation. Funds for the program are raised through the sale of municipal bonds. The loans are then administered to eligible homeowners by an authorized local lender. Residential PACE programs are either administered directly by the municipality or through a public-private partnership with an authorized PACE provider.

Once the home insulation upgrades have been completed, you will repay the PACE loan as an annual add-on to your property taxes. A predetermined amount will be added to your yearly tax bill for a set period of time.

Graphic courtesy of energy.gov

Repayments attached to your annual property tax bill make these loans extremely secure. Therefore, PACE can provide homeowners with lower interest rates than other similar financing options. Moreover, the interest you pay on your PACE loan will most likely be tax-deductible.

If you sell the house before you’ve paid off the entirety of your loan, then the remaining amount will automatically be transferred to the new owner. This is because the amount of a PACE loan is determined by the value of the property, rather than the borrower’s credit. Therefore, the loan is tied to the property itself, rather than the individual borrower.

In 2019 alone, more than 200,000 homeowners invested about $5 billion in energy efficiency and insulation upgrades through PACE financing. Currently, residential PACE loans are only available in three states – namely, Florida, California, and Missouri.

Fannie Mae’s HomeStyle Energy Mortgage

This mortgage option can be used to finance energy efficiency and insulation improvements in apartment buildings, cooperatives, and other types of multifamily housing. It requires a relatively small down payment, since the loan-to-value is quite high (about 97 percent of the property’s value can be covered by this mortgage).

Fannie Mae’s HomeStyle Energy Mortgage aims to provide homeowners with a lower all-in interest rate as well as extra loan proceeds, whenever possible. It is available to the owners of multifamily buildings around the U.S.

To qualify for this mortgage, you will need to submit an energy report for your property – complete with the projected utility savings resulting from the insulation upgrades. This report must be filed by a local, qualified energy assessor. However, Fannie Mae does not require an energy report for weatherization and insulation upgrades costing up to $3,500.

Some of the insulation upgrades that can be covered under this $3,500 loan are as follows:

  • All types of air-sealing procedures, including window caulking and the weather-stripping of doors
  • Adding a layer of insulation to the attic, walls, floors, and basement of the house
  • Replacing old and uninsulated doors and windows with ENERGY STAR certified ones
  • Testing and sealing of HVAC duct-work for better insulation
  • Installing smart thermostats and other equipment controls for more efficient heating, cooling, and home ventilation

HUD Title I Property Improvement Loans

Title I Property Improvement Loans, offered by the United States Department of Housing and Urban Development (HUD), are available in all parts of the country. As long as you have a good credit score, it should not be difficult to qualify for this loan.

You will not be required to provide any collateral if you’re borrowing an amount under $7,500. If the amount being borrowed is greater than $7,500, however, then the loan must be secured by a mortgage on the house being improved. You can borrow a maximum of $25,000 for a period of up to twenty years to make your residence more energy-efficient. You will have to repay the loan (along with interest) in regular, monthly payments.

HUD insures private lenders against any loss incurred on the Title I Property Improvement Loans, so you can get this type of financing from almost any bank, credit union, or other type of financial institution. To qualify for this loan, however, you must have occupied the house for 90 days minimum.

You can use the Title I loan to increase the energy efficiency of your home by installing solar panels, refurbishing or replacing old windows and doors to minimize air leaks, adding a layer of insulation to the walls or attic, etc. In short, the money from this loan can be used for upgrades that make the house more comfortable and eco-friendly.

Home Equity Line Of Credit (HELOC)

Photo of a calculator, book, pens and cash with a sheet of paper entitled "HELOC, home equity line of credit." A HELOC can finance an insulation upgrade, among other things.
If you already have some equity in your home, a HELOC can be a handy way to finance your home insulation upgrade.

This is a line of credit that uses your home as collateral. It is a revolving account, meaning that as soon as you repay the amount you’ve borrowed, you can once again borrow up to your credit limit, without having to undergo another loan approval process.

You will receive a debit card or checkbook that will allow you to easily access your credit line. You can then use these funds to finance large expenses, such as insulating your walls and flooring, repairing and replacing old climate control equipment, weather-stripping your doors and windows, etc.

As it is secured by your property, a HELOC usually offers a lower interest rate than many other financing options. Therefore, you can use it to consolidate higher-interest loans that you might have taken out for previous home improvement projects. Usually, the interest paid on a HELOC is tax-deductible.

Energy-Efficient Mortgage

Also known as a “green mortgage,” an energy-efficient mortgage (EEM) can be used to finance energy-saving features and insulation upgrades in your home. You can also use an EEM to purchase or refinance a house that already has an energy-efficient design and state-of-the-art insulation.

Whether you use the loan to finance insulation upgrades to your existing home or to purchase a new, energy-efficient home, you will be saving significant sums on your utility bills. Over time, these lower utility bills will add up to significant cost savings, far exceeding the interest on the EEM. Due to these factors, lenders often offer homeowners favorable debt-to-income qualifying ratios on EEM.

To qualify for this mortgage, you will need to have an energy inspector or assessor conduct a proper energy audit of your home. This audit is meant to verify that the home is well-insulated and energy efficient (or that it will be, once the improvements have been completed).

The audit will also help you (and the lender) get a rough estimate of potential monthly energy savings resulting from the insulation upgrades. EEM financing is typically sponsored by the conventional secondary mortgage market and federally insured mortgage programs.

Concluding Note

In the long-run, a well-insulated and energy-efficient home will yield rich returns on investment. However, you first have to make the investment on insulation upgrades, before you can reap their financial rewards.

The financing option that best suits your needs just might be on the above list. A comfortable, affordable, and environmentally sustainable home is something every American should aim for.

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