Q: I'm the director of the San Francisco based Green Sphere Finance and specialize in sourcing mortgage loans and project financing for green real estate. I'm currently working with a number of appraisers in an attempt to develop a standardized matrix structure to help quantify the added value of green building aspects. An inherent problem with financing these projects as you well know, is being able to convince the lender/investor of the increased valuation as a result of the green benefits- in an effort to offset costs and increase lending margins. You obviously have significant experience in this realm...how have you been able to get such projects to appraise at the desired levels?

A (John Willis): The first thing is to define ‘green'.  There are a number of building systems that are considered by many to be ‘green' that have little difficulty with financing.  Examples: ICF, Solar/radiant floor heating, passive solar, recycled materials, etc…  The problem is when the borrower wants to use an ‘alternative' method of ‘framing' or creating the structural elements of the house.  Building systems such as straw bail, rammed earth, etc. are very difficult to finance conventionally, to my knowledge. 

If there's a structure that is semi conventional such as a straw bale house with traditional trussed roof—otherwise conventional, there are probably portfolio lenders who will finance them, especially if they are common to the area. 

Honestly, if someone is going to build a bona fide earthship, there's only one way I know to secure conventional financing:  Do a lot loan, then get an equity line of credit against another property for construction.  That may even be problematic because of the term of the lot loan; not always. 

The only program I know of that is specifically designed to finance green residential properties is the EEM (Energy Efficient Mortgage).  While it's a well intentioned program, I don't think it's of much value.  All it does is calculate debt ratios a bit differently.  The ratios take into consideration the cost savings to the borrower.  But ratio problems are just as easily solved by stated income programs which are available in every term conceivable.  It's solving a problem that's already been solved. 

If you know of any ‘green mortgages' I would love to hear about them.  I have a number of ideas about how to create such a product, but have yet to identify one.

Q: We have just begun the process of trying to finance the building of a new home. We have talked to several lenders who are very willing to lend us money based on our current finances/credit scores and equity in the land that we own. But...the land that we own has an ADU that is completely "off-grid" meaning, solar/inverter/batteries for electricity, above ground collection system for water and composting toilets. We are willing to put in new septic and well for the new house but bringing electricity to where we live is impossible. We live in a green neighborhood and have agreed to not bring electricity up the road (it's about 1 1/2 miles from here). I've read through your q&a and found some info there, but I was wondering if you know of any national lenders that would finance a completely conventionally built house except for solar energy.

A: Yes, this is a very doable project to finance based on the information you provided in your question. There are some lenders who are willing to finance solar properties but back away at the last minute when they review the appraisal and are not able to find comparable solar properties in a very close proximity to the subject property. Fortunately there are a small group of lenders who will give significant latitude when it comes to accepting distance between comparable properties. At Mountain Classic Mortgages over 98% of our business is financing alternative or earth friendly homes and we have the ability to do then in all 50 states. We have assembled a team of lenders who understand that this market can not be treated like generic conventional properties. I would love to talk with you about your project, get more details and discuss how we may help with your finance issues.