Energy-efficient home improvements and how to finance them
Homeowners are increasingly looking for ways to make their homes more efficient, comfortable and future-ready.
Right now, 21% of homeowners renovate specifically to improve energy efficiency as interest in features like smart home systems, energy-efficient appliances and renewable energy projects continue to grow, according to the Home Improvement Research Institute (HIRI). Some of these home improvement projects can have a real impact when it comes time to resell, potentially improving property values 3% to 5%, HIRI reports.
Not every eco-friendly upgrade delivers the same bang for your buck though. Energy savings differ, and resale value can vary depending on the project, the home itself and the local market.
If you’re considering energy-efficient home improvements, here are five upgrades worth exploring and what to know about financing them.
Heat pump replacement systems
Heating and cooling account for a significant portion of a home’s energy use, making HVAC upgrades one of the most impactful improvements many homeowners can make.
A heat pump is an all-in-one heating and cooling system. Like a refrigerator, it uses electricity to move heat rather than create it. During the summer, it transfers heat from inside your home to the outdoors. During the winter, it reverses the process to bring heat indoors.
Because heat pumps use energy efficiently, they can help lower utility costs while improving indoor comfort. Homeowners with aging furnaces or air conditioners may also benefit from lower maintenance costs and fewer unexpected repairs.
Installation costs typically range from about $6,000 to $25,000 depending on the size of the home, the equipment selected, and installation requirements.
Many heat pump replacement projects may qualify for federal incentives through the Energy Efficient Home Improvement Credit. Consult a tax professional for guidance when claiming eligible energy credits.
Solar panels and battery storage
Solar panels remain one of the most visible energy efficiency improvements available to homeowners.
Solar panels convert sunlight into electricity that can power your home. Many homeowners also pair solar systems with battery storage, which stores excess electricity generated during the day for later use. That can mean both keeping the lights on when the rest of the neighborhood loses power and paying less for it during peak demand periods.
While the upfront investment can be substantial, solar energy systems may help reduce long-term energy bills while increasing a home’s appeal to buyers who value sustainability and lower operating costs.
Residential solar installations commonly cost between $15,000 and $30,000 before incentives, while battery storage systems can add another $8,000 to $18,000 depending on capacity and features. Homeowners may qualify for an energy efficient home improvement credit federally, but there may also be state or local energy credits available as well.
Energy-efficient windows and doors
If your home feels drafty in the winter or struggles to stay cool during the summer, your windows and doors may be part of the problem.
Energy-efficient windows and exterior doors are designed to reduce heat transfer between the inside and outside of your home. By limiting air leaks and improving insulation, they can help heating and cooling systems work more efficiently.
Many homeowners notice benefits beyond lower energy bills, including improved comfort, reduced outside noise and fewer drafts.
Before investing in new windows, consider scheduling a professional home energy audit. Assessments or audits can help identify where your home is losing energy and which energy efficiency improvements may deliver the greatest impact.
Replacement windows typically cost between $500 and $1,400 per window installed, although costs vary based on materials, size and customization.
Because window and door replacements are highly visible improvements, they can improve curb appeal — a nearly foolproof way to improve value. In fact, 97% of agents say curb appeal is important to selling, according to the National Association of Realtors.
Smart thermostats and energy monitoring systems
Smart thermostats automatically adjust temperatures based on schedules, occupancy and household habits to help reduce unnecessary energy use. Energy monitoring systems track electricity consumption throughout the home and can help identify appliances or devices that consume more energy than expected.
Other smart home technologies, including leak detectors, smart lighting and connected appliances, may help homeowners better manage both energy use and maintenance needs.
HIRI research found that 38% of homeowners are considering smart home systems within the next five years, making them one of the most popular emerging home upgrades.
While these upgrades may not deliver the same dramatic energy savings as a new HVAC system or solar installation, they carry significantly lower upfront costs than those projects, and offer immediate convenience. Most smart thermostats cost between $100 and $350, while whole-home energy monitoring systems often range from $200 to $1,000 or more.
Electric car charger for home
As electric vehicles become more common, home charging stations are becoming a practical upgrade for many households.
A Level 2 charging station is a dedicated electric car charger for homes, installed in a garage or driveway that can charge an electric vehicle much faster than a standard household outlet. For EV owners, it offers convenience and may eliminate the need to rely on public charging stations.
Installation costs typically range from about $500 to $2,000 depending on the charger selected and whether electrical upgrades are required.
It’s also a future-oriented upgrade that may appeal to prospective buyers as electric vehicle adoption continues to expand.
How to finance energy-efficient home improvements
The best way to finance a home improvement project depends on the scope of the work, your budget, and your long-term financial goals.
If you’ve planned ahead and saved for the project, paying with cash may help you avoid borrowing costs altogether. However, larger projects may require additional financing. Luckily, there are multiple options to get the job done at lower rates than your credit card offers, especially if you have built home equity.
Home equity loans
If you’ve built substantial equity in your home, a home equity loan may offer the lowest-rate option to borrow, even though they do carry some closing costs.
A home equity loan allows you to borrow against the equity in your home and receive the funds as a lump sum. Because you’re using your home as collateral, qualified borrowers can often secure a lower rate than with other loans.
Lenders typically evaluate your available equity, loan-to-value ratio, credit score and income before approving the loan. Home equity loans often work well for larger projects with a defined budget because they generally include larger loan amounts, a fixed interest rate, fixed monthly payments and a set loan term.
Home equity line of credit (HELOC)
A home equity line of credit (HELOC) also uses your home as collateral, but works differently than a traditional loan.
Instead of receiving a lump sum, you can draw funds as needed during a set draw period. This flexibility can be useful for projects completed in phases, or renovations where costs may change over time.
Because many HELOCs have variable rates, monthly payments can increase or decrease as interest rates change. For homeowners managing ongoing upgrades or multiple projects, however, that flexibility may outweigh the uncertainty.
Other home improvement financing options
Depending on your goals, there may be additional mortgage financing options available for energy-efficient upgrades and renovations:
- Cash-out refinance: Replace your current mortgage with a larger loan and receive the difference as a cash lump sum to fund major home improvement projects. Refinancing is a better option when you can achieve a lower interest rate than your original loan.
- FHA 203(k) loan: Finance the purchase or refinance of a home and include eligible renovation costs through a single mortgage.
- Energy efficient mortgage (EEM): energy-efficient home improvements as part of a home purchase or refinance.
The right option depends on your home’s value, the scope of your project and your overall financial situation. Empeople’s mortgage experts can walk you through the right financing solution for you.
Preparing to apply
Before applying for financing, take time to estimate project costs and review your overall financial picture. Lenders typically evaluate factors such as your credit score, debt-to-income ratio, available equity, and the type of loan you’re requesting. Understanding your options and asking the right questions upfront can help you avoid costly surprises later.
Making your upgrades work harder for you
The best eco-friendly home upgrades do more than reduce energy consumption. They can improve comfort, lower energy bills, and make your home more attractive to future buyers.
Whether you’re considering a heat pump replacement, installing solar panels, upgrading windows, adding battery storage or installing an EV charger, choosing projects with long-term value can help you get more from every dollar you invest.
