sw creative financing 2 25
DESCRIPTION
Creative financing for green building.TRANSCRIPT
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Creative Financing, Energy, and Design Options for the Residential Market
David LantzOwnerShelterwood [email protected]
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Welcome
This seminar is intended for homeowners, lenders, appraisers, and realtors
We will outline the many financing options available to help stimulate the existing housing market
Creative financing options will help everyone incorporate energy and design upgrades into older, well located homes
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Agenda
Energy Improvement Mortgages: Case Studies
Financing options▫ FHA 203(k) loan program▫ VA energy mortgage program▫ FHA energy mortgage program▫ Freddie Mac energy mortgage program▫ Fannie Mae energy mortgage program
RESNET energy rating Estimating energy savings
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Energy Improvement Mortgage (EIM):What We Stand to Gain
Lower cost of ownership for homeowners Pollution reduction for the environment Better home resale value Bigger and more secure loans for banks Construction work for local contractors
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Energy Improvement MortgagesCase Studies
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The Roebels in Cincinnati, Ohio
Want to refinance Want to lower
monthly expenses Own an 89-year-
old, two-story bungalow
$8000 cap for FHA EIM
Wish list of energy improvements
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Home Energy Rating Results
2x4 stud walls were uninsulated▫ Insulation would require an expensive electrician
retrofit Foundation walls were uninsulated and had water
penetration issues Attic and knee walls were poorly insulated Rim joists were uninsulated and leaky Furnace and water heater were inefficient, open-
combustion models Single-pane, double-hung wood windows were
rickety Whole home air leakage was 16 ACH at 50 Pa
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Home Energy Rating Results
Measure Cost Savings
New vinyl windows U-29, SHGC-0.29*
$4,488
$358/yearNew closed-combustion water heater
$400
Rim joist insulation and air sealing with DIY kit
$300
Total $5,188
Month Cash Flow $27/month** $30/month
Estimated 20% air leakage reduction resulting from new windows and rim joist insulation.
*Windows also qualify for an additional 30% tax credit.**The monthly finance cost is the monthly payment, including interest, that will pay for all the tabulated improvements when they are financed with a 30-year fixed mortgage at 4.75%.
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Results
Underwriters decided to only provide funding for windows▫ Does not show positive NPV as a stand alone
improvement according to rater Whole house air leakage was reduced by
23%
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Lessons Learned
All members of the EIM team need to work together and have faith in the goal of EIMs▫ Realtors understanding▫ Lenders cooperation▫ Homeowners patience and persistence▫ Flexible terms from energy contractors
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Jane’s New Home Purchase in Cincinnati
90-year-old energy guzzling home
Required major rehab to remedy the energy inefficiencies
Goal to include energy improvements costs in the mortgage
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Home Energy Rating Results
Measure Cost
New roof and decking $7,000
Chimney repairs $1,000
Electrical modernization $5,000
HVAC; new dual-fuel heat pump and duct repairs $7,500
Water heater replacement to tankless model; requires chimney repair $2,200
Insulated and air-sealed ceiling $1,600
Insulated walls in 2x4 stud cavities $4,300
Insulated foundation walls and air sealing rim joist cavities $1,700
Total Added Cost to
Mortgage
Extra Monthly Finance Cost
Monthly Energy Savings
Monthly Cash Flow
~$30,000 $140 $260 $120
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Finance Options and Challenges
FHA EIM ▫ Limit is $8,000 so $22,000 will need to be financed
elsewhere 203(k) mortgage
▫ Allows up to $35,000 but requires a larger down payment Solution
▫ EIM loan in conjunction with the 203(k)▫ Line item certain improvements with EIM which requires no
down payment▫ Cosmetic and structural improvements done with 203(k)
Purchase price of $140,000 plus $30,000 improvements equals a mortgage of $170,000 ▫ Neighborhood comps sell for $160,000 but have higher
energy costs
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Not an Ideal Outcome
Due to comp values, she only secured $20,000 worth of financing not the $30,000 required▫ New roof▫ Chimney repairs▫ Electrical work▫ New HVAC system
203(k) secured $13,000 EIM secured $7,000 She didn’t achieve the “Energy Efficient”
upgrade to her home
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Getting the Ideal Outcome
If Jane had done the complete renovation her mortgage would have been $170,000
Her home would have a greater intrinsic value than her neighborhood’s inefficient homes
Her neighbor’s would have smaller mortgage payments, but higher energy bills
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The Energy Efficient Mortgage:A Solution to the Mortgage Problem
The Energy Efficient Mortgage (EEM) is a loan for efficient homes that don’t need improvements
The bank regards utility savings as an extra income source for prospective home buyers
EEM is insured and less risky for banks What if Jane’s home were automatically
prequalified for an EEM? What if potential buyers were automatically
offered more-flexible financing in the form of an EEM?
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Energy Financing Programs Can Drive the Home Renovation Economy
If the industry can successfully build upon the three solutions described here▫ Bigger loan caps for needed improvements▫ Stackability with other loan programs▫ More rewards for homes that prove
themselves efficient We will see the emergence of an extreme
energy makeover movement
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Financing Options
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FHA Section 203(k) Loan ProgramTurning “Fixer-Uppers” into Dream Homes
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What Is a 203(k) Loan?
Allows a borrower to purchase or refinance a home including additional money for repairs or renovations▫ Rehabilitate a foreclosed property▫ Update a property▫ Fix a required repair▫ Add a room addition
Amount financed is based on the projected value of the property after rehabilitation
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203(k) Mortgage Background
Established by congress in 1978 Allows banks to develop new business
while mitigating risks▫ Provides government-backed mortgage
insurance Assists in the revitalization and
stabilization of neighborhoods negatively impacted by the current foreclosure crisis
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Two Types of 203(k) Loans
Standard▫ Extensive structural work▫ Repair costs exceed $35,000▫ Loan maximum is 110% of the “as-improved”
value Streamlined
▫ Places fewer demands on borrower▫ Maximum of $35,000 in repair costs▫ Use of FHA-designated consultant not
required
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203(k) Mortgage Details
Loan down payment can be as low as 3% Property must be used as a principle
residence by an individual or family $5,000 is minimum amount financed
for renovation Six months of mortgage payments can be
included in the financing
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Examples of Repairs Allowed
Kitchen or bathroom remodel Replacing roof, gutters, and
downspouts Adding a family room,
bedroom, or bathroom Replacing flooring, tiling, or
carpeting Completing basement, attic,
or adding second story Expanding or building a
garage Renovating a deteriorating
property▫ Repairing structural damage▫ Repairing termite damage
Upgrading plumbing, heating, air conditioning, or electrical wiring
Eliminating health and safety hazards (eg, lead paint)
Making the home accessible to the disabled
Installing a well or a septic system
Adding a porch, deck, or patio Adding or repairing siding or
repainting Installing energy efficient
windows or doors
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203(k) Loan Process
Find a home to purchase and rehab Choose to rehab current residence
Find a home to purchase and rehab Choose to rehab current residence11
Work with an FHA-approved lender Work with an FHA-approved lender22
Meet with FHA-approved fee consultant and contractor at property to determine “required vs desired” improvements
Meet with FHA-approved fee consultant and contractor at property to determine “required vs desired” improvements
33
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203(k) Loan Process (cont.)
FHA fee consultant prepares work write-up
FHA fee consultant prepares work write-up44
Lender gives construction plan to FHA-approved appraiser to determine “as-improved” value
Lender gives construction plan to FHA-approved appraiser to determine “as-improved” value
55
Direct endorsement lender underwrites loan
If approved, closing is scheduled
Direct endorsement lender underwrites loan
If approved, closing is scheduled66
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203(k) Loan Process (cont.)
Loan is closed and is FHA insured Rehab funds are placed in escrow
Loan is closed and is FHA insured Rehab funds are placed in escrow77
Work begins FHA fee consultant approves draws as
work is completed to pay borrower/contractor
Work begins FHA fee consultant approves draws as
work is completed to pay borrower/contractor
88
After completion, lender releases 10% holdback on all contracted work
After completion, lender releases 10% holdback on all contracted work99
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Energy MortgagesThe Key to Unlocking Residential Energy Efficiency
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Two Types of Energy Mortgages
Energy efficient mortgage▫ Uses energy cost savings from a home that
is already energy efficient to increase buying power and capitalizes the improved features into the appraisal
Energy improvement mortgage▫ Finances the energy efficient improvements
using projected energy cost savings Both rely on the home’s energy rating to
calculate generated efficiency savings
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VA Energy Mortgage Program
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VA Energy Mortgage Details
Use for purchase or refinance 100% of energy improvement financing
▫ Up to $3,000 based on documented installation costs
▫ Up to $6,000 provided the projected energy cost savings exceed the increase in mortgage payment
No additional down payment if energy improvements create positive cash flow
Total loan amount including improvements cannot exceed VA limit
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VA Energy Mortgage Details (cont.)
Final LTV may exceed 100% if energy improvements have positive cash flow
All improvements identified as cost-effective by home energy rating are eligible
180 day installation limit Documentation
▫ Home energy rating▫ Contractor bid▫ Certificate of reasonable value▫ Loan analysis worksheet▫ Report and certification of loan disbursement
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VA Energy Mortgage Example
Appraised Value of Home
$120,000
Interest Rate 8.5%
Term of Loan 30 Year
Cost of Energy Improvements
$3,400
Projected Monthly Energy Savings
$32.50
Monthly Mortgage Payment Increase
$26.14
Loan is approved ▫ Monthly energy
savings from the rating exceeds the added monthly mortgage payment
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FHA Energy Mortgage Program
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FHA Energy Mortgage Details
Use for purchase and refinance of one- or two-unit owner occupied home
Finance up to $4,000 or 5% of the appraised value (maximum of $8,000)
The LTV may exceed 100% of appraised value when energy rating shows combined improvement value is greater that cost of upgrades
Can include all improvements identified as cost-effective by home energy rating
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FHA Energy Mortgage Details (cont.)
90 day limit for installation Documentation
▫ Home energy rating▫ Contractor bid▫ HUD B Worksheet
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FHA Energy Mortgage ExampleStandard Loan
Home Sale Price $60,000
Interest Rate 8.0%
Closing Cost $1,200
Cost of Energy Improvements $3,000
Average Life of Measures Calculated by Rating
10 Years
Monthly Energy Savings $40
Standard Underwriting
Sales Price $60,000
Appraised Value $60,000
Closing Cost $1,200
LTV 97.75%
Loan Limit $58,640
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FHA Energy Mortgage ExampleEnergy Improvement Loan
Standard Loan Calculation $58,640
Cost of Energy Improvements $3,000
Average Life of Measures Calculated by Rating
10 Years
Annual Energy Savings $480
Energy Premium (calculated by energy rating software)
$3,220
New Loan Amount
Standard Loan Calculation $58,640
Energy Improvement Mortgage $3,000
New Loan Amount (no additional down payment nor income required to qualify)
$61,640
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Freddie MacEnergy Mortgage
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Freddie Mac Energy Mortgage Details
Use for purchase and refinance of one to four owner occupied units
No limit to amount financed for energy improvements if supported by value
Requires a down payment related to the LTV of the loan including energy improvements
Principle, interest, insurance, and taxes (PITI) of loan increases dollar-for-dollar to reflect energy savings projected by energy rating
Value of energy rating improvements added to appraised value
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Freddie Mac Energy Mortgage Details (cont.)
Loan amount including energy upgrades cannot exceed 95% LTV
All improvements recommended as cost-effective by energy rating are eligible
Installation may take up to 120 days Documentation
▫ Home energy rating
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Freddie Mac Energy Mortgage Example
Interest Rate 8.0%
Borrower’s Monthly Income $2,900
Cost of Energy Improvements $3,000
Projected Monthly Energy Savings from Rating
$75
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Freddie Mac Energy Mortgage Example (cont.)
ConventionalMortgage
Energy Improvement
Mortgage
Home Purchase Price $100,000 $103,000
Down Payment $10,000 $10,307
Mortgage Qualified for $90,000 $100,200
Monthly PI Qualified for $660.39 $735.39
Taxes and Insurance $139.61 $139.61
PITI $800.00 $875.00
Less Monthly Energy Savings
$0 $75
Adjusted LTV 90% 97%
Consumer Buying Power $90,000 $100,221 With the same income, a consumer can afford an additional
$10,200 mortgage amount while capturing a $75/month energy savings
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Fannie Mae Energy Mortgage
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Fannie Mae Energy Mortgage Details
Use for the purchase or refinance of one to four owner occupied units
Finance up to 15% of the home’s appraised value for cost-effective energy improvements
No additional down payment is required for the financed energy improvements
Dollar-for-dollar estimated savings is added to the maximum allowable PITI monthly payment
Value of energy rating improvements added to appraised value
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Fannie Mae Energy Mortgage Details
Value of energy improvement measures added to LTV calculation
All improvements recommended as cost-effective by energy rating are eligible
Improvements may take up to 6 months Documentation
▫ Home energy rating▫ Fannie Mae Form 1224, “Energy Efficient
Mortgage Underwriting Adjustment Report”
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Fannie Mae Energy Mortgage Example
Purchase Price $100,000
Cost of Energy Improvements $3,000
Projected Monthly Energy Savings from Rating
$50
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Fannie Mae Energy Mortgage Example (cont.)
ConventionalMortgage
Energy Improvement
Mortgage
Home Purchase Price $100,000 $103,000
Down Payment $10,000 $10,000
Mortgage Qualified for $90,000 $93,000
Monthly PI Qualified for $614 $634
Less Monthly Energy Savings
$0 $75
Monthly Housing Cost $614* $584 With the same income, a consumer can afford an additional
$3,000 mortgage amount while capturing a $50/month energy savings
*Not including monthly energy costs.
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Energy Loan Summary
Both energy improvement and energy efficient home loans require energy rating services
Loans offer the consumer a “better deal” on financing energy efficient improvements
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RESNETResidential Energy Services NetworkMark QuigleyRESNET Certified Energy RaterEnergy ConsultantShelterwood
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Energy Efficiency: “The First Fuel”
Why the “First Fuel”?▫ Least cost carbon mitigation option▫ Only near-term resource option▫ Available everywhere in large amounts▫ Best economic strategy
How can we mine the “First Fuel”?▫ Energy policies that overcome barriers▫ Climate policies that use EE effectively▫ Better delivery infrastructure: Financing
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Why Buildings Are Important
Residential and commercial buildings account for 70% of US electricity consumption
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Why Buildings Are Important (cont.)
Residential and commercial buildings account for 39% of US carbon dioxide emissions
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The Average American Home1
1. RECS 2001: http://www.eia.doe.gov/emeu/recs/2. Brookings Institute
107 million residentialhousing units in 2001
10,700 kWh a year inelectricity
700 therms natural gas▫ Or 730 gallons fuel oil▫ Or 488 gallons LPG
~12.5 tons of CO2
▫ ~8.3 tons from electricity Represents 21% of US primary energy use Most important: 75% of all buildings that will be in use
in 2050 are already built2
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Steps That Need to Be Taken
Adopt policies that overcome market barriers that prevent maximizing the full economic potential of energy efficiency
Adopt climate policies that exploit energy efficiency
Provide affordable and accessible financing
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What Is RESNET?
An industry-based, not-for-profit membership corporation▫ Membership composed of program
administrators, raters, and allied industries▫ Governed by a board of 21 elected by
membership A national standards making body for building
energy efficiency rating and certification systems in the USA▫ Consensus based standard development and
amendment process▫ Transparent review and adoption process▫ Formal public review and comment process
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Building Energy-Efficiency in US
RESNET Ratings (2007)▫ 139,907 homes rated as 15% over standard
energy performance ▫ 13.4% of new homes
▫ 23,702 homes were certified as complying with federal tax credit ▫ 50% more efficient than code▫ 2.3% of new homes
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The Zero Energy “Yardstick”
A national energy use index Measures whole-home energy
performance on a relative scale ▫ 100 = energy use of the
“American Standard Home”▫ 0 = no net purchased energy
use (the “Zero Energy Home”)
Energy Star homes have a HERS Index ≤ 85
Widely used in the “Beyond Code” marketplace
HERS = Home Energy Rating System.
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Status of Federal Tax Credits
$2,000 builder credit▫ Extended to January 1, 2010
NAHB/Senator Snowe and Feinstein Proposal▫ $5,000 for reaching 50 HERS Index
Existing Homes Credit – extended and expanded▫ 30% of cost, up to $1,500 (Energy Star web
site)
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National Energy/Climate Change Legislation
Comprehensive review of energy and environmental policy▫ Expected to be introduced this spring
Improved building performance expected to be included as part of legislation
Home energy performance profiles may become mandatory for presale homes in many EU countries
Bloomington energy lobbyists are pushing to require that all new Monroe County home are Energy Star Qualified
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Estimating Energy SavingsIdentifying Energy Efficiency Opportunities in Existing Homes
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Estimating Energy Savings
Rater performs home inspection to gather data about a current energy characteristics
Rater enters data into REM/Rate™ software to calculate energy rating score▫ REM/Rate™ software is used by most
RESNET raters▫ Accurate at determining energy usage in
new and existing homes
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Home Energy Rating System (HERS) Index
Rating from 500 to 0▫ 0 = Zero energy home
100 = 2004 IECC code home 1 point = 1% energy usage Energy Star = 85 points
▫ + thermal bypass checklist▫ 1 Energy Star product category▫ ≤ 6 CFM/100 sq ft duct leakage to the
outside of floor area, etc.
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Preserves Natural Resources
5 TCF of Natural Gas
In 1970, used to heat 35 million homes
Today, used to heat 58 million homes
TCF = trillion cubic feet.
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Tools of the Trade
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Blower Door
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Duct Blaster
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Infrared Camera
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Flow Hood
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Duct Mask
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Fogger
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Case Study: 1950 Ranch in Lexington, KY
No wall insulation R-19 ceiling Double pane glass 15% glass to wall Vented crawl R-19 floor R-19 attic 78 AFUE furnace 10 SEER A/C 300 CFM duct leakage $1/therm $0.08/kWh
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List of Measures to Consider
Air infiltration Wall insulation Closed crawl perimeter insulated Duct leakage Furnace replacement Heat pump replacement Ceiling insulation Air conditioner replacement Lighting
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Air Infiltration Rim/band Attic
penetrations Sill plate
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Windows
AtticHatch
Plumbing
Ceiling Lights
Wiring
Floor
Foundation
Floor
Chimney
ExteriorDoors
Typical Sources of Air Leakage in the Home
Penetrations
Top Plate
Air Sealing/Infiltration ControlWhat Is Infiltration?
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Air Infiltrations
Can we get the house too tight? Ventilate ASHRAE 62.2 Some say ASHRAE 62.2 over ventilates Maintain relative humidity 30-50%
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REM/Rate Improvement Analysis
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REM/Rate Improvement Analysis (cont.)
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Wall Insulation Dense pack Cellulose Foam
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REM/Rate Improvement Analysis
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REM/Rate Improvement Analysis (cont.)
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Crawl Space Moisture Problems
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Symptom: Light Mold Spotting in Crawl Space
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Typical Response: Add Ventilation
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Resulting Mold Explosion
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85 F60% RH70 F DP
73 F90% RH70 F DP
Framing: 70-78 F
Ducts: 55-65 F
H2O Pipes: 55-65 F
Floor: 65-70 F
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50
60
70
80
90
100
6/3 6/13 6/23 7/3 7/13 7/23 8/2 8/12 8/22 9/1
Rela
tive H
um
idit
y (
%)
Wall Vented ClosedOutside
Phase I Crawl Space Relative Humidity
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Crawl Space Walls
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REM/Rate Improvement Analysis
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REM/Rate Improvement Analysis (cont.)
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Duct Sealing:What’s Missing From This Picture?
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Mechanical Systems
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Furnace Replacement
Replace 78 AFUE with 95 AFUE 30% up to $1500 tax credit Downsize with improvements
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REM/Rate Improvement Analysis
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REM/Rate Improvement Analysis (cont.)
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Heat Pump Scenario
10 SEER 6.8 HSPF Replace with 14 SEER 8.5 HSPF
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REM/Rate Improvement Analysis
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REM/Rate Improvement Analysis (cont.)
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Air Conditioner Replacement
10 SEER to 14 SEER Downsize
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REM/Rate Improvement Analysis
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REM/Rate Improvement Analysis (cont.)
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Complete Package With Furnace
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Show Me the Money
Positive cash flow Simple payback
▫ Cost divided by savings Return on investment
▫ Savings divided by cost
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Return on Investment
Conservative▫ 9.4 %
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Complete Package With Heat Pump
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Return on Investment
Conservative▫ 18.6 %
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Dow Jones Industrials
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Resources
Cut Your Energy Bills Now-150 Smart Ways to Save Money and Make Your Home More Comfortable and Green ▫ Bruce Harley, The Taunton Press $12.95
Insulate and Weatherize▫ Bruce Harley, The Taunton Press $19.95
Read This Before You Buy, Build, or Renovate▫ BuildingScience.com, Information▫ http://tinyurl.com/5nhbzl
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110
Thank You
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Questions
David LantzOwner
Office: 812-333-2991Cell: [email protected]
Mark QuigleyEnergy Consultant
Office: 812-333-2991Cell: [email protected]
www.prairiegreenhomes.com