Many rebuilders can’t rely solely on insurance money to rebuild.
They may have been underinsured or they may still be negotiating their payout. Fire-resilient and energy-efficient design features, despite the clear benefits to security, operating costs and resale value, are only as feasible as the money a rebuilder can secure. Fortunately, there are a number of generous incentives and special financing programs to encourage resilient design and efficient use of resources. As a result, such design features can actually increase funds available to a rebuilder and decrease the cost of rebuilding.
Content:
Refinancing Loans
8. Apply for an Energy Efficient Mortgage to increase qualifying loan size.
Energy Efficient Mortgages (EEMs) can increase the loan size that one qualifies for by stretching the debt-to-income qualifying ratios. This is justifiable because of the reduced monthly expenditures that an energy-efficient home grants. Monthly energy bill savings could then go towards a higher monthly mortgage payment. There are three types of EEMs; conventional EEMs are those offered by lenders who sell loans to Fannie Mae and Freddie Mac; Federal Housing Administration (FHA) loans are those offered by FHA-approved lenders; and VA EEMs are offered for veterans and present military personnel. The maximum loan increase is 15% (for conventional EEMs) or, for FHA-EEMs, 5% of whichever is the least:
the value of the property, or
115% of the median area price of a single family dwelling, or
150% of the conforming Freddie Mac limit.
ACTION
» To receive an EEM the homeowner will need to demonstrate that the energy efficient measures will reduce the operating costs of the home, and thereby reduce monthly expenditures. Have your home’s energy performance reviewed by a certified home energy rater (Resource #3 & #4). Then apply for the EEM with an FHA-approved lender, or ask your non-FHA approved lender if they have EEMs or if they allow underwriting flexibilities for energy efficient improvements.
RESOURCES
9. Use the CaliforniaFIRST Residential PACE Program to finance solar panel installations and energy efficiency improvements.
The Residential Property Assessment Clean Energy Program (R-PACE) allows homeowners to finance on-site renewable energy generation or energy efficiency home improvements. Homeowners then repay the loan as part of their annual property tax bill. Repayment plans can be as long as 20-30 years with no down payment. Additionally, because the loan is connected to the property taxes, it remains attached to the home if you were to sell the property.
ACTION
» Review resources to understand which elements of your rebuild can be financed using PACE. For CaliforniaFIRST PACE Financing, apply online (Resource #1) or by phone at 844-736-3934.
RESOURCES
Incentives & Rebates
10. Apply for Southern California Edison’s (SCE) Clean Energy and Resiliency Rebuild Program (CLEAR program).
SCE recently released a bundled incentive program for energy-efficient and resilient design. The program offers incentives for energy-efficient dual-fuel homes, energy-efficient all-electric homes, as well as on-site battery systems tied to photovoltaic panels (solar panels). The energy efficiency incentive rewards homes designed to above-energy-code standards (above Title 24 2019 energy code). Importantly, this program can potentially apply to any new home, so fire-loss rebuilders planning to first build an accessory dwelling unit (ADU), which includes any structure that can function as a livable building, may be able to benefit from this incentive for each structure separately. Incentive opportunities include:
• Energy-Efficient Dual-fuel (gas+electric) home: up to $7,500; or
• Energy-Efficient All Electric Home: up to $12,500; and
• Battery system tied to solar PV: up to $5,000 (in addition to one of the above incentives)
ACTION
»To use this program, submit design plans to SCE and enlist a certified energy analyst (CEA) to calculate (model) the energy use of your prospective home. Contact SCE for more information on certified energy analysts and the application process at CLEAR@sce.com.
RESOURCES
11. Apply for the Solar Investment Tax Credit to deduct some of the cost of solar- electric panels from federal taxes.
The Federal Solar Investment Tax Credit (ITC) allows homeowners to deduct part of the cost of installing solar panels and battery systems (if connected to solar) from their federal taxes. In 2019 the tax credit will deduct 30% of all purchase and installation costs; in 2020, the deduction will be 26% of those costs.
ACTION
» To claim the ITC, attach IRS form 5695 to your federal taxes. It is recommended to first seek advice regarding eligibility from a qualified tax professional.
RESOURCES
12. Take advantage of SCE rebates on energy-efficient and smart appliances.
SCE offers numerous rebates for energy-efficient home appliances. For example, you can receive a $500 rebate on select models of energy-efficient electric heat pump water heaters that also reduce utility costs, and help to secure $12,500 from SCE’s CLEAR program electrification incentive (see recommendation #10). For any home equipment purchase, first review SCE’s website for energy-efficient product recommendations and rebates.
RESOURCES
13. Maximize energy efficiency- and resilience-driven home upgrades as part of your rebuilding effort because capital value increases do not increase property tax assessment for fire rebuilds.
Under CA Proposition 13 property taxes are based on the home value at the time of purchase and property value assessments cannot increase by more than 2% per year unless there is “new construction.” Proposition 13 stipulates that new construction as a result of wildfire loss does not count as “new construction” (as prop 13 defines it) and thus it will not increase your taxes (Revenue & Taxation Code Section 70). Therefore, it is beneficial to a rebuilder to maximize improvements when rebuilding instead of doing such home improvements at a later date which may increase taxes.
RESOURCES
Construction & Contract Estimation
14. Take advantage of local expertise and online resources to protect against price gouging and fraud.
Without a clear understanding of typical construction costs, rebuilders are susceptible to overpaying contractors and agreeing to unfavorable contract terms. Doug Burdge of Burdge Architects found that Malibu-specific rebuilds on average cost $450-500/square foot. This estimate does not include site work (e.g. driveways, landscaping, irrigation, fencing) or “soft costs” (e.g. design fees, permitting and approval fees, etc.). Estimate approximately 20% of your total budget for soft costs. Keep in mind there are a number of characteristics of your site and design that can alter your cost/square foot, including access to your site, the size of the project, and of course, design details.
ACTION
» Before choosing a contractor, evaluate their prior work, talk to references, and look up their license and any disciplinary information on the Contractor State License Board (CSLB) website below. Beware of a contractor who says he or she will give you money back; that is fraud. Once they provide you with a cost, cross check it with average costs (see reference below) and quotes from other nearby rebuilders who are willing to share.
RESOURCES
15. Use prefabricated modular construction to lock in all costs upfront.
A prefabricated (prefab) home is one that was partially or entirely fabricated in a factory before being transported to a site. There are two distinct types of prefab homes: manufactured and modular. Manufactured homes (aka mobile homes) are regulated according to Federal building standards and are treated more like a car than a home. We do not recommend this type of home as they tend to depreciate over time and most communities have strict regulations governing their use. Modular homes are also prefabricated, but the components are then anchored to a permanent foundation just like a standard site-built home. They can be supplied as panelized components (put together on-site like legos) or as a whole home fabricated off-site. Like any standard site-built home, they are subject to state building codes.
Because prefab construction companies have a higher degree of control over the process, they typically use a fixed-price contract which allows a rebuilder to lock in construction costs upfront. The benefits of such an arrangement are two- fold:
(1) you can understand and plan for exactly what a project will cost from the start, and
(2) it hedges your burden of risk for increased costs from construction errors, change orders, or weather delays.
Prefab building also provides a number of benefits to the construction process including a shortened build time, which may lower soft costs like labor (see recommendation #26). While prefab construction may not be cheaper overall, some local prefab companies offer discounted fees and services for those rebuilding as a result of wildfire (see resources below for more detail).