Please ensure Javascript is enabled for purposes of website accessibility

Buying a New Home? Here are 2 Key Money Saving Options

By Matthew DiLallo – Feb 2, 2014 at 1:04PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Buyers of newly built houses have a lot of options to choose from, all of which add to the cost of the home. However, these options will actually save buyers money over the long term.

Each year about half a million Americans buy a newly built single-family home. Many of these buyers have the exciting opportunity to choose everything from the color of the cabinets to the location of the cable outlets. It is the option to make these choices that can transform a simple house into a dream home.

Even those buyers not building their dream home have a range of options to select. However, one issue few consider is how much money that home will cost them each year as it wastes more energy than it should. All would-be buyers should take a closer look at a home before the purchase to see if it features two specific money saving options.

My story
My wife and I just broke ground on our dream home. Through that process I learned about all of the options available to buyers today. These options can add a lot of money to the base price of a home that is being newly built, which is why our PulteGroup (PHM -1.24%) home cost 24% more than the base price. While we made our share of cuts to lower the price, there were two options that I simply would not cut. These were a high-efficiency hot water heater and a radiant barrier. While both added to the price of our home, these options should actually reduce our costs over the long term. So whether considering a new or existing house, buyers today should look to see if the home has these two options; if not, they should consider spending a little extra after closing to add these two money saving options. 

Energy efficiency comes standard
Most newly constructed homes today are built with energy efficiency in mind. In fact, the average home built today is 30% more energy efficient than a typical resale home. However, there is a real opportunity to do much better than average when working with homebuilders such as KB Home (KBH -1.59%). In 2012, the average house built by KB Home received a 68 HERS Index score. The lower the HERS score, the more efficient the home; a typical new home scores 100 and a typical resale scores 130.

Energy efficiency translates into dollars saved over the long term. That's why Beazer Homes (BZH -2.90%) actually includes the expected monthly energy costs of each of home plan so that prospective buyers can compare a Beazer Home to what they currently pay in utility bills. Its CEO suggests that buyers need to consider how lowered utility costs factor into affordability. For example, if a buyer can save $100 per month on a new home's utility bill, it potentially increases buying power by more than $15,000 on a 30-year fixed mortgage at current rates.

Most builders are including energy-efficiency features like a programmable thermostat, low-emissivity windows, and a 90% or better efficient furnace, as well as using house wrap to make homes more energy efficient. Builders are also sealing up gaps around light sockets and lighting fixtures. However, not all of the money saving features available to builders come standard these days and fewer are available in an existing home. That's why buyers need to know all of their options and choose those that will actually save them more money.


Photo credit: Flickr/Jesus Rodriguez.

High-efficiency hot water heater
Every day Americans use on average 64 gallons of water. Heating that water for showers or to clean the dishes costs the average American household $400-$600 each year. That's the second largest energy expense in the average home, accounting for 14%-18% of utility bills.

However, newer technology such as a tankless hot water heater or a heat pump are much more efficient to heat water. These upgrades can save a home between $100-$300 per year on energy costs. In my new home the tankless water heater was the most expensive energy saving option, but the payback in just a few years making it well worth the added cost.

Radiant barrier
When the sun shines on a roof, its radiant heat makes the roof hot. This heat is then transferred through the roof into the cooler attic. A radiant barrier reduces this radiant heat by reflecting it away from the cooler attic.

Because of this, radiant barriers are very effective in warmer climates. Studies have shown that adding a radiant barrier can reduce cooling costs by up to 10%. That's a pretty compelling cost savings, especially when considering these can be installed for a few hundred dollars. Of all of the energy saving options that are available these days, radiant barriers have the best payback. This is especially true in warmer climates where the air handling system is in the attic as adding a radiant barrier can help to reduce the wear and tear on that equipment.

Final thoughts
Most people buying a new home bdon't think about energy efficiency, but seeking a home with these features will save money in the long run. Better yet, these energy savings can then be invested each month and used in a few years when that dream kitchen is no longer dreamy and needs to be upgraded again.

Where to invest those energy savings in 2014

Matt DiLallo has the following options: short April 2014 $20 puts on PulteGroup. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Stocks Mentioned

PulteGroup Stock Quote
$44.59 (-1.24%) $0.56
KB Home Stock Quote
KB Home
$31.50 (-1.59%) $0.51
Beazer Homes USA Stock Quote
Beazer Homes USA
$13.72 (-2.90%) $0.41

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.